VAT increase seen as endangering jobs in Indonesia

Indonesia’s Industry Minister has asked the Finance Ministry to review its decision to raise VAT on cigarettes, arguing that the increase would put pressure on cigarette manufacturers to cut jobs, according to a story in The Jakarta Globe.

The Finance Minister said yesterday that VAT on cigarettes would be increased from 8.4 percent to 8.7 percent starting on January 1, as part of efforts to increase state revenue.

“We have received feedback from the tobacco sector and company executives feel that [the increase] is too high,” Industry Minister Saleh Husin said on Tuesday. “Of course, the higher VAT will only add more troubles, especially for small businesses.”

Indonesia’s tobacco industry is dominated by big companies such as Sampoerna and Gudang Garam, with hundreds of small-scale producers catering to niche markets in the regions.