Research says twofold increase of cigarette tax will benefit Indonesia

The Jakarta Post ,  Jakarta   |  Sat, 03/22/2008 1:42 PM  |  Business

Raising the cigarette excise duty by 100 percent would not only increase the country's GDP, but also boost workers' annual incomes and create numerous new employment opportunities, according to the latest research by the University of Indonesia.

The research, carried out jointly by the UI's Demographic Institute and the Southeast Asia Tobacco Control Alliance throughout last year, shows tobacco companies would survive if the excise duty was increased twofold from the current average of 31 percent on factory prices.

"Our research shows that if the government increased the cigarette tax by 100 percent, cigarette retail prices would increase by around 26 percent," Suahasil Nazara of the UI Demographic Institute told reporters at a press conference Wednesday.

"As a result, cigarette consumption would only decline around 9 percent. This very small number will not necessarily ruin the cigarette industry," Suahasil said.

Citing the research, Suahasil said doubling the excise duty would lead to an increase in the country's GDP of Rp 335.35 billion (about US$37 million).

This year, the government expects the $373 billion economy to expand by 6.2 to 6.6 percent due to increasing domestic consumption and commodity exports.

Suahasil said as household spending on tobacco products would decrease due to the higher cigarette retail prices, workers' annual income would grow by Rp 491.61 billion and there would be an additional 280,000 new employment opportunities as more money would be allocated for other types of household consumption.

Abdillah Ahsan, also from UI, said according to the 2005 National Socio Economic Survey, seven out of 10 Indonesian households routinely allocated portions of their income for tobacco products.

"The average monthly (tobacco) expenditure for a family with at least one tobacco smoker is Rp 113,089 or 10.44 percent of its total expenditures," he said.

"The budget for tobacco ranks the second highest, only a little smaller than expenditures for grains, which includes rice, corn and wheat," Abdillah said.

According to the data, Abdillah said, household expenditures on tobacco was much higher than on food items like fish, meat, eggs and milk, as well as vegetables and fruits.

"The expenditure for tobacco is also higher than on all non-food expenditures, including education, health and housing," he said.

Suahasil and Abdillah urged the government to step in and protect the interests of the people.

"What is important here is that the government should ignore all the cigarette companies' propaganda that increasing the cigarette tax would push them toward bankruptcy and worsen unemployment," said Suahasil.

"The facts show government income from cigarette duties would rise by 7 to 9 percent, which could be used to improve other sectors, eventually creating more jobs," said Suahasil. (uwi)

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