Most of the illegal cigarettes in Indonesia are machine-rolled clove cigarettes (sigaret kretek mesin). Photo credit: Setaraku, CC 4.0.
Indonesia will keep tobacco excise taxes unchanged in 2026, with officials weighing the effect higher rates could have on jobs in the industry, finance minister Purbaya Yudhi Sadewa said, according to Reuters.
"We decided not to increase excise tax rates for tobacco products next year, but we will clean up the market of illegal tobacco products," Purbaya said, noting that he considered the risk of layoffs in making the decision.
He made the announcement after meeting with the Indonesian Cigarette Manufacturers Association last Friday, which urged the government to hold rates steady for 2026.
The country, which ranks among the highest globally for smoking prevalence, also left tobacco excise rates unchanged this year. Officials argued that past hikes had failed to reduce cigarette use and instead drove smokers toward cheaper or illegal options.
Indonesia had raised tobacco excise rates almost every year since 2014 in an effort to curb smoking, especially among young people.
The finance minister also said the government’s plan includes expanding tobacco products industry zones (KIHT) to more regions after reviewing the performance of existing ones. Sadewa said the government also wants to draw illegal producers into these special zones so they can shift into the formal sector and contribute to tax revenues.
This Monday, the Indonesian government announced plans to introduce a new regulation to tackle the spread of illegal cigarettes, especially those sold without excise stamps, which have grown more common in recent years, according to Antara.
"The concept is currently being prepared," deputy minister of industry Faisol Riza said.
Industry ministry data shows illegal cigarettes made up 3.03% of total volume in 2019 and rose to 6.9% by 2023. Most of them are machine-rolled clove cigarettes (sigaret kretek mesin/SKM), Riza said.
He warned that the surge in untaxed products has hurt the domestic tobacco sector, leading to lower production of legal cigarettes.
"Several producers have reported impacts such as idle rolling machines, reduced utilization, and layoffs, which ultimately affect workers' welfare," he said.
Riza noted that many Indonesian smokers are highly price-sensitive and turn to cheaper options, which fuels the demand for illegal products.
"A conducive business climate can only be realized if all parties, including the public, work together to eradicate the circulation of illegal cigarettes," he urged.
Illegal cigarettes continue to rise in circulation, posing potential losses to state revenue of tens of trillions of rupiah [billions of US dollars]. The main problems include growing sales of unstamped cigarettes, along with counterfeit, misused, and reused excise stamps. The spread of illegal products has weakened the legitimate tobacco industry by reducing production and machine use, which in turn has harmed workers’ livelihoods.