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Govt may raise cigarette excise by 10%

As cigarette sales are likely to grow even stronger next year in the wake of a better business environment, the government is set to increase the excise rate on cigarettes  by 10 percent

Rendi A. Witular (The Jakarta Post)
Jakarta
Fri, June 5, 2009

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Govt may raise cigarette excise by 10%

As cigarette sales are likely to grow even stronger next year in the wake of a better business environment, the government is set to increase the excise rate on cigarettes  by 10 percent.

Director general of customs and excise Anwar Suprijadi told The Jakarta Post Thursday the government would impose higher excise rates for cigarettes and tobacco next year  to raise more state revenue.

“There won’t be any rate increase this year as agreed between the industry and the government. That’s why we aim for the 10 percent rise next year,” Anwar said.

He said the state budget would need a boost next year as government spending would remain a key  driver for the economy as in the case of this year when exports and private investments slowed.

The government has decided to leave unchanged the excise duty for cigarettes and tobacco this year to protect the cigarette industry’s employment rate amid sluggish growth in other labor-intensive sectors.

Anwar believed the jump in the rate would not jeopardize the profits of cigarette companies nor encourage job cuts in the industry as they would experience a better business environment next year.

Even when hit by the current slowing of economic growth since the fourth quarter of last year, cigarette companies are far from experiencing problems, as evident in their first quarter sales volume and profits.

According to data released by publicly listed PT HM Sampoerna, the nation’s biggest cigarette maker by volume, cigarette sales totalled 59.6 billion sticks between January and March this year as against 53.5 billion sticks recorded in the same period last year.

The company recorded a 27 percent jump in net profits during the first quarter of this year to

Rp 1.35  trillion  (US$128 million) from Rp  1.05 trillion in the same period of  the previous year.

Rival PT Gudang Garam also enjoyed hefty net profits by booking a more than  100 percent jump to Rp 780.4  billion from Rp 336.1 billion.

Indonesia boasts the world’s cheapest cigarette prices, and is targeting to produce at least 245 billion cigarettes this year, up 3.3 percent from 237 billion last year.

However, this stronger performance did not result in similarly higher benefits for government as excise revenue dropped by 7.5 percent to Rp 14.8 trillion between January and March, from Rp 16 trillion in the same period last year, according to the customs and excise directorate general.

The figure is 30 percent of the full-year excise duty target of Rp 49.5 trillion.

 Around 80 percent of the excise revenue was contributed by the cigarette and tobacco industry, while the remaining 20 percent came from a combination of alcoholic beverage companies and other nonessential businesses.

With this in mind, Anwar said the planned excise duty increase was justifiable, and that cigarette companies were more worried about the planned regional taxes as they claimed these additional taxes would be burdensome.

“From the inputs that I received, they are now more worried about this regional tax plan than the adjustment in the excise duty,” he said.

Lawmakers are still deliberating the bill on regional tax and tax refunds, which if passed will impose on cigarette  companies new regional taxes of between 10 and 25 percent of the product’s selling price.

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