Govt should allocate tobacco tax revenue toward healthcare

Aditya Suharmoko ,  The Jakarta Post ,  Jakarta   |  Wed, 06/24/2009 11:27 AM  |  Business

Local administrations must allocate half their revenue from the planned regional tax on cigarettes for spending on health and anti-tobacco campaigns, researchers and a legislator said Tuesday.

Harry Azhar Aziz, head of the House of Representatives' special committee on the regional tax bill, said the stipulation, aimed at "compensating for the excesses of the tobacco industry", would be put into effect in 2014.

The regional tax bill, currently being deliberated at the House, will allow regional administrations to impose an additional tax of 10 to 15 percent on cigarette excise.

Of the tobacco tax, 70 percent will be disbursed to local administrations, with the remainder going to the government.

The current average tobacco excise is 34 percent of the price of a cigarette. The government expects to rake in Rp 49.4 trillion (US$4.9 billion) in tobacco excise this year; as of June 11 it managed to collect Rp 23.45 trillion, or 47.37 percent of the target.

"The regions that are already prepared can implement *the tobacco tax* sooner," Harry said.

"We urge the government to set up pilot projects in some areas."

In 2008, the cigarette industry paid Rp 60 trillion in total taxes, up from Rp 53 trillion in 2007.

Harry said there would be additional funds of up to Rp 7.5 trillion for local administrations as a result of the additional tobacco tax revenue, meaning almost Rp 4 trillion would be allocated toward health.

A study by the University of Indonesia's School of Demographics shows nearly 70 percent of Indonesian households buy tobacco, with low-income households' tobacco and betel leaf spending amounting to 17 times their spending on meat, 15 times that on healthcare, and nine times that on education.

"We hope that with the tobacco tax increase, regions administrations will have more money to spend on healthcare," said researcher Abdillah Ahsan.

The government's road map for the tobacco industry determines the tobacco excise on labor, state revenue and health.

Between 2010 and 2015, the priorities will change to state revenue, health and labor. From 2015 to 2020, the main priority will be health, while labor and state revenue will get equal consideration.

The Finance Ministry's Fiscal Policy Office (BKF) says there may be a cap on the number of cigarettes produced, to 260 billion, from 2016.

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