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Gajah Mada University study reveals that the ratio of illegal cigarettes on the market this year has dropped from 8.5 percent last year to 6.24 percent with an estimated loss from unpaid taxes standing at Rp 300 billion (US$3.3 million)

“Actually we predict the loss might be larger, or more than one percent from its total excise targeted this year,” Elan Satriawan, a university researcher, said Wednesday during a discussion on illegal cigarettes in Indonesia.

Indonesia is targeting to net Rp 57 trillion from excise in 2010. The study, undertaken by the study center for economic and public policy at the university, covers research on 256 villages in 16 provinces, collecting 18,200 packets of cigarettes in the areas produced from 2010.

“The ratio [of illegal cigarettes] is smaller this year, and it is even lower compared to other overseas countries, which were in the two digits,” he said. Currently, Russia, China and Brazil are the biggest markets for illegal cigarettes, Elan said.

He added that many illegal cigarettes were distributed in South Sulawesi and South Kalimantan, while other areas like Lampung and Yogyakarta have the smallest illegal cigarette market.

The illegal products are mainly produced by several small cigarette producers in Central Java such as in Malang, Kudus and Blitar. They are sold mostly in small villages throughout the country and are easy to access.

“Producers of illegal cigarettes tend to sell their products outside Java such as to Kalimantan or Sulawesi, while big cigarette producers don’t want to take a risk by selling the product without proper excise,” Elan said, adding that the study had found no illegal cigarettes from major producers.

The study recommended the government hold tight security on some ports to prevent illegal cigarettes sailing to other provinces.

“Indonesia contains many islands. It is easy to transport the product illegally from port to port when there is no tight security and serious punishment,” he said.

Indonesia is the fifth biggest country in the world and one third of its population are smokers.

To cope with the planned increases of excise revenue, the government may raise the tobacco excise tariff by 5 percent next year. The Finance Ministry says the increase in excise rate was needed because the planned increase had been delayed for six months.