T

he East Java provincial administration has expressed its opposition to the central government'€™s plan to increase the country'€™s revenue target from tobacco excise next year. The administration argued that the plan would produce massive lay-offs in the country'€™s largest tobacco-producing region.

Speaking to The Jakarta Post recently, East Java Governor Soekarwo shared his disappointment in the plan. '€œYes, I disagree [with the plan] as layoffs have been increasing recently. If [cigarette] production costs rise, companies will suffer from [financial] burdens, which could lead to bankruptcy and lay-offs,'€ Soekarwo said.

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 the financial reports of publicly listed cigarette giants PT Gudang Garam, PT HM Sampoerna and PT Bentoel International Investama.

The Finance Ministry has set an excise target of Rp 155.5 trillion (US$11.7 billion) for 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.

By 2010, East Java, which supplies 85,000 tons of the 150,000 tons of nationally produced tobacco, was home to 1,220 tobacco-related companies that employed a total of 192,000 workers. The numbers, however, dropped to 790 companies and 159,000 workers three years later.

The government'€™s decision to increase tobacco excise last year, according to Soekarwo, resulted in the dismissal of between 8 to 10 percent of workers in the province'€™s tobacco industry.

'€œIn principle, I oppose the hike [plan], unless [the increase] is in par with the inflation level in East Java, which stood at 2.11 percent as of August,'€ he said.

Head of the Association of Cigarette Employers'€™ (Gapero) East Java chapter Sulami Bahar said the government'€™s plan to increase the target of excise revenue by more than 10 percent was excessive.

Many tobacco-related companies, Sulami said, would end up in bankruptcy if the government insisted on carrying out the plan next year.

'€œRecently, the government has been able to collect only Rp 88.5 trillion from [tobacco excise], or only 60 percent of this year'€™s target. In the end, the government must be realistic in responding to the weakening economic situation,'€ Sulami said.