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Sampoerna, Gudang Garam see 20% profit drop after excise hike
The two companies' financial reports show swelling costs as the Finance Ministry continues to periodically raise excise taxes to deter smoking.
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A worker arranges hand-rolled Dji Sam Soe cigarettes at a PT HM Sampoerna factory in Surabaya’s Rungkut Industrial Estate. JP/Wahyoe Boediwardhana (JP/Wahyoe Boediwardhana)
I
ndonesia’s two biggest cigarette makers saw their net profits drop over 20 percent annually in the January to March period this year after the government raised cigarette excise taxes.
Publicly listed PT Gudang Garam and PT HM Sampoerna saw their net profits decline 28.62 percent year-on-year (yoy) to Rp 1.74 trillion (US$120.6 million) and 22.13 percent yoy to Rp 2.58 trillion, respectively, in the first quarter of the year, their latest financial reports show.
The two companies’ net profits were squeezed by rising excise costs on top of weak cigarette demand. The Finance Ministry raised cigarette excises by around 12.5 percent starting in February after raising them 23 percent last year to deter smoking and raise state revenue.
However, the hike only applied to machine-made cigarettes (SKM) and not to hand-rolled cigarettes. The former accounts for the majority of the revenue of both companies’ but the latter employs more workers.
Read also: Excise hike, weak purchasing power to hit cigarette makers
“They were hit by an over 23 percent excise hike [last year], so their excise costs increased, and they had to raise prices, but by raising prices, demand might fall, so they did not raise prices that much, especially with COVID-19” Samuel Sekuritas Indonesia analyst Yosua Zishoki told kontan.co.id in April.
COVID-19 depressed the companies’ revenue as consumers lost income amid mass layoffs and business closures last year. Both companies booked declines in profit in 2020, even before the latest excise hike came into effect.
