The government will raise the excise duty for cigarettes and tobacco products, starting Feb. 1, 2009, by an average 7 percent to help increase state revenues, while at the same time keeping the industry viable.
The excise duty will be changed from a combination of ad valorem and specific taxes to a specific tax only, based on production levels and retail prices for cigarettes and tobacco products, the Finance Ministry said in a statement Wednesday.
An ad valorem tax is based on a product's retail price, while a specific tax is based on a product's price per unit.
The rise in excise duty aims in part to contain the growth of cigarette consumption to 5 percent, less than the 7 percent growth booked in 2008, and to increase excise duty income from the industry to Rp 48.2 trillion (US$4.37 billion) as stated in the 2009 state budget, up Rp 2.7 trillion from the 2008 budget.
Indonesia, Southeast Asia's largest economy, has the lowest average price for cigarettes worldwide -- and analysts estimate about 12 million people are directly or indirectly dependent for their income on the industry.
The ministry's head of fiscal policy, Anggito Abimanyu, said the new duty scheme would simplify the calculation of tax.
"In 2009, we will categorize the type of cigarettes based on the retail price."
The ministry's director general of customs and excise, Anwar Suprijadi, said earlier the specific tax would be "simpler and boost compliance" of industries producing cigarettes and tobacco products.
The ministry will simplify the categorization of factories producing machine-made clove and white cigarettes from three types to two, while maintaining the segmentation of factories making handmade clove cigarettes by three categories.
The policy is conceived taking into account that the industry is among the most labor intensive sectors, and can absorb a large number of workers despite the economic slowdown, the ministry said.
Anggito also said the government would allow sellers to sell cigarettes up to 5 percent above the retail price. "Usually they sell cigarettes below the retail price."
If cigarettes are sold above the retail price, the government can also tap additional income tax from the seller, he said.
