Indonesia Maintains Tobacco Excise Tariff to Combat Illegal Cigarettes

Strategic Decision to Stabilize Industry

The Indonesian government's decision to maintain the current tobacco excise tariff is seen as a strategic move to stabilize the tobacco industry while addressing the growing issue of illegal cigarettes. Finance Minister Sri Mulyani Indrawati's predecessor, Purbaya Yudhi Sadewa made this decision which is expected to provide relief to industry players amid rising illegal tobacco products.

Rising Illegal Cigarette Concerns

The circulation of illegal cigarettes has been on the rise, increasing from 4.9% in 2020 to 6.9% in 2023. This growing trend has raised concerns about state revenue losses and the overall health impact of unregulated tobacco products. Ahmad Tauhid, Director of the Institute of Development of Economics and Finance (INDEF), noted that while the excise policy is heading in the right direction, the effectiveness of monitoring illegal cigarettes remains a challenge.

Economic Implications

The decision is also significant in terms of its economic implications. The rise in illegal cigarettes is estimated to result in state revenue losses of between Rp 15-20 trillion. This hidden economy is not accounted for in the GDP, representing a significant leakage in potential government revenue.