T

he government'€™s decision to raise excise on tobacco products by only around 11 percent next year has sparked public outcry as it would contradict the nationwide anti smoking campaign.

Indonesian Consumer Foundation (YLKI) chairman Tulus Abadi said Tuesday that the 11 percent growth rate, which is far lower than 23.5 percent recorded this year, was too low to reduce cigarette consumption. '€œWe generally appreciate the government'€™s efforts to control cigarette consumption. However, an 11 percent hike is not an effective way to reduce consumption. It could have been higher,'€ he said.

The Finance Ministry'€™s customs and excise director general, Heru Pambudi, said recently that the government had decided to downsize the scale of the excise rate to 11.36 percent on average next year.

'€œThe decision was based on two factors. First, with the increasing excise duty, cigarette consumption is expected to decline. Second, the moderate hike is aimed at preventing more layoffs [in the cigarette industry],'€ he told reporters.

Based on the tax office'€™s data, the 2016 tobacco excise hike would vary, depending on cigarette type and business size. For a hand-rolled cigarette maker with output less than 50 million cigarettes per year, for example, the excise rate will stay the same at Rp 80 per cigarette.

Meanwhile, for a white (non-clove blended) cigarette maker with an annual production of more than 2 billion sticks, the excise hike will be at 16.47 percent.

Heru said that discrimination in the excise rate hike was aimed at providing more room for small and medium-sized cigarette makers to grow.

According to data collected by Bahana Securities, cigarette companies PT HM Sampoerna, PT Gudang Garam and PT Bentoel Internasional Investama have so far laid-off as many as 19,314 workers, mostly due to shutdowns of their hand-rolled cigarette units.

Reza Priyambada, an analyst with NH Korindo Securities, said on Tuesday that the moderate excise hike would be a sigh of relief for most cigarette producers as the excise duty accounted for a huge portion of their production cost.

Gudang Garam, for example, has spent Rp 27.29 trillion on excise duty ribbons, VAT and cigarette tax from its total cost of sales amounting to Rp 40.43 trillion as of the third quarter of this year.

Another cigarette maker, PT Wismilak Inti Makmur, meanwhile spent 47.4 percent of its total cost of goods sold on excise duty ribbons in the first nine months of this year.

YLKI'€™s Tulus said, meanwhile, that Indonesia'€™s cigarette excise rate of between 38 and 42 percent was currently among the lowest in the world. He said the excise rate reached 75 percent in many countries.

The government initially targeted raising excise for tobacco products by 23.5 percent to Rp 148.85 trillion next year but it eventually decided to lower it to 11 percent after a series of discussions and public hearings with the House of Representatives and cigarette associations.

With an 11 percent excise hike, the government is upbeat that it will reap in Rp 139 trillion by the year'€™s end as cigarette companies are forecast to buy more excise ribbons this year before the new excise rate is imposed early next year.