T

he House of Representatives and a number of business groups have called on the government to set a rational target for the tobacco excise amid a weakening cigarette industry.

Hendrawan Supratikno, a member of the House'€™s Commission XI overseeing finance, said on Wednesday that all political fractions in the commission had argued that the government needed to be reasonable in setting its excise policy despite its ambitions to significantly boost state revenues.

'€œRegulations on tobacco must not paralyze the industry,'€ he told The Jakarta Post, adding that the cigarette industry employed millions of people.

The Finance Ministry has set an excise target of Rp 155.5 trillion (US$10.6 billion) in the 2016 state budget plan, an increase from Rp 145.7 trillion in the 2015 revised state budget.

From the planned total excise target next year, Rp 148.85 trillion is expected to come from the tobacco excise, a 23.5 percent increase from the initial target of Rp 120.5 trillion.

Association of Indonesian Cigarette Producers (GAPPRI) chairman Hasan Aony said during a recent discussion that a very high excise on tobacco products would simply hamper the cigarette industry'€™s ability to grow.

It would raise costs, attract more cheap illegal cigarettes and probably lead to massive layoffs if the producers could not offset rising production costs.

Excise tax, along with value-added tax and the cigarette tax, usually makes up around two-thirds of costs for most cigarette makers, according to financial reports of publicly listed PT Gudang Garam, PT HM Sampoerna and PT Bentoel International Investama.

Data from the Institute for Development of Economics and Finance (Indef) has shown that excise on tobacco made up over 90 percent of the government'€™s total revenue from excise.

The contribution, however, has been declining throughout the years, from over 98 percent in 2005 to only around 95 percent last year, the data revealed.

Most cigarette companies have felt the pinch from both the current economic slowdown and heavier pressures from growing excise tax and health campaigns.

Kiswoyo Adi Joe, an analyst with Investa Saran Mandiri, said that the outlook for the cigarette industry would remain sluggish as the government had imposed a number of regulations limiting promotional activities.

Cigarette makers also found it difficult to market their products overseas because the governments of many export destinations were also campaigning for non-smoking lifestyles, he added.

Enny said that it was important for the government to find a middle way to accommodate both the interests of the state and the interests of cigarette producers.

She said that the government might consider adding more excise subjects other than cigarettes in order to boost its excise revenues.

Meanwhile, Customs and Excise Directorate General spokesman, Haryo Limanseto, said that the final decision on the tobacco excise would be in the hands of the Finance Ministry'€™s Fiscal Policy Office (BKF).

The government'€™s road map on tobacco, which runs from 2007 to 2015 and onwards, currently prioritizes health, followed by job creation and state revenues. It aims to find a balance between the three by diminishing illegal cigarettes and strengthening industries, simplifying excise tax, limiting new cigarette companies and controlling nicotine consumption.