In August 2021, the Government announced its plans to increase the excise tariff on tobacco products (CHT) in 2022. In the Book-II of Financial Note and the State Revenue and Expenditure Budget (APBN) for the 2022 Fiscal Year, the government targets to receive the excise revenues IDR 203.92 trillion in 2022 or increasing by 11.9% from the 2021 outlook. There are several considerations stated by the government regarding the increase in the excise tariff. They are, among other, the health preference of child smokers, the livelihoods of workers who work directly in the cigarette industry, and the source of income of farmers from the tobacco industry (IHT).
These, however, are considered irrelevant by some parties, especially the players in cigarette and tobacco industry. First, it is because the public’s purchasing power has not yet recovered from the impacts of the pandemic. Increasing the cigarette excise will only increase the selling price of cigarettes in the market, and at the end will even lessen the cigarette purchases. Eventually, it will further decrease the sales performance of cigarette companies. In 2020, the turnover of cigarette companies continued to decrease by 50% due to the Covid-19 pandemic.
Second, based on data from BPS and Bank Indonesia, the tobacco products industry (IHT) is still the largest source of excise for the country. The HTI contributes 95% into the state revenue and cannot yet be replaced by other sources. Raising the cigarette excise tax will not automatically increase the income from cigarette excise if it is not accompanied by an increase in the cigarette sales itself. The price will remain main consideration factor for consumers in choosing and buying cigarettes. Thus, a decrease in the number of cigarettes bought will automatically lessen the sales volume of cigarette products in the market. Eventually, then, the state revenue from cigarette excise will also decrease.
Third, a study conducted by the Institute for Development of Economics and Finance (Indef) in 2020 shows that there was no correlation between the increase in cigarette excise and the preference rate of smokers.
Fourth, the planned increase in cigarette excise tax will not automatically be followed by an increase in the selling price of cigarette raw materials. In fact, it will only make the tobacco and clove farmers in more difficult situation. It is because an increase in excise taxes will only reduce the demand for tobacco leaves and cloves by cigarette manufacturers, and subsequently will lead to the lessening of working hours and wages for the cigarette factory workers. As the cigarette manufacturers will seek tobacco and cloves at the lowest possible prices, it will make it more difficult for the farmers, next to the existing challenges such as weather conditions and the unequal distribution of subsidized fertilizers and production equipment.
Some parties, such as Asosiasi Petani Tembakau Indonesia (APTI), Gabungan Petani Cengkih Indonesia, Asosiasi Koperasi Ritel Indonesia (Akrindo) and Gabungan Perserikatan Pabrik Rokok Indonesia (GAPPRI), hope that the government will not do too quickly to increase the cigarette excise in 2022. It is because the impacts generated will be contrary to the government’s considerations, and will only worsen the performance of this industry.