The Jakarta Post
The Cabinet’s decision on Thursday to increase next year’s excise on cigarettes by an average 10 percent is a badly needed annual fiscal measure to curb the growth of tobacco sales in Indonesia, the only country in Asia that has not yet ratified the United Nations Framework Convention on Tobacco Control.
Levying taxes to increase cigarette prices is perhaps the only tool that can be used to curb the growth in tobacco sales, as the country allows completely free cigarette sales and consumption, even among children. It is no wonder that Indonesia, the world’s fourth-largest population, is also the third-largest tobacco consumer after China and India.
But even the pricing mechanism has its limitations, because the government has to consider several factors in determining the tax level. Too steep a rise in the tax could adversely hurt the industry, which directly and indirectly employs an estimated 3.5 million workers, including tobacco farmers. Too high a price may also encourage smuggling. As the world’s largest archipelagic country, Indonesia has vast, porous coastal areas for contraband trade.
In addition, the tobacco excise also accounts for almost 9 percent of state budget revenues.
But the health factor, which is much more important than all the factors above, has compelled the government to gradually phase out tobacco production and consumption through regulatory measures. Virtually all studies have concluded that smoking is dangerous for the health, not only of smokers but also those exposed to secondhand smoke.
Leading life insurers have even warned that the government’s universal health insurance scheme would never be financially sustainable if the program was not supported with a strong campaign to promote healthy lifestyles. Among the key components of a healthy lifestyle is not smoking tobacco and not being exposed to tobacco smoke.
The anti-tobacco camp may consider the excise hike as negligible compared to the maximum 57 percent above retail prices allowed by the 2007 excise law, and ineffective in influencing consumers’ behavior. But we should remember that the 10 percent raise is only an average. The rate of the excise hike varies according to the mode of production. Machine-rolled cigarettes usually get the biggest hike and hand-rolled cigarettes, the lowest. Moreover, cigarettes also are still subject to value-added tax.
But we think that increasing the excise alone will not significantly reduce the smoking prevalence in the country. The government needs to issue more tobacco control regulations to send a strong signal to the business world that tobacco is a diminishing industry in the country.
The government also should expand its programs to help tobacco growers diversify into other equally profitable crops, and direct the administrations of tobacco-producing provinces and regencies to spend a portion of their tobacco excise revenues on crop diversification.
Finally, the government has to steadily cut the import quota of raw tobacco, which now amounts to about onethird of the annual consumption of around 300,000, and impose a much higher excise on cigarettes containing imported tobacco.