Indonesia
President Joko Widodo’s government is trying to decide whether to significantly raise tobacco taxes in 2016, something Indonesian authorities have done for years. Currently, tobacco taxes constitute about 10% of state revenue.
The industry association representing Indonesia’s vibrant cigarette industry – the world’s fifth largest – says a big hike will bring further declines in sales and heavy job losses. It says small factories already laid off 10,000 workers in 2014.
Tobacco taxes have been raised an average 11% annually since 2010. The country’s president set ambitious tax collection targets for this year, including one of Rp 139 trillion (US$10.42 billion) for cigarette taxes, and if that’s not met, the government’s budget gap will widen.
According to the Association of Indonesian Cigarette Producers, about 60% of men smoke, cigarette production increased at an annual 7% average between 2007 and 2013. Last year, it declined 0.5% and this year will see a 2% fall.
The finance ministry announced its plans earlier this year for an additional 10% value-added tax on cigarette sales, but has yet to impose it and may scrap that proposal.
The producers’ association maintains that higher taxation in 2016 will make conditions much harder for factories. “The industry must be protected,” spokesman Hasan Aoni Aziz said. “Smoking is often the indicator of the economy.”
Last year, Indonesia made 344 billion sticks, of which more than 90% were distinctive kretek cigarettes, containing cloves to spice up the taste. The big listed makers are HM Sampoerna, Gudang Garam, and Wismilak Inti Makmur.
The number of cigarette factories has dropped to 600 from more than 3,000 only 5 years earlier.