Tax hike criticized

Tobacco industry representatives criticized Indonesia’s plan to raise cigarette prices by more than a third, saying that it would encourage illicit manufacturing and threaten jobs, reports Reuters.

“If illegal cigarettes become widespread then all parties are disadvantaged, from legal cigarette manufacturers, their workers, to tobacco and clove farmers,” said Hananto Wibisono, spokesman for Indonesia Tobacco Community Alliance. “The government will also be at disadvantage because illegal cigarette producers don’t pay excise taxes,” he said.

“It will definitely disrupt the tobacco ecosystem,” said Troy Modlin, director of market leader Sampoerna.

Sampoerna and Gudang Garam suffered their biggest intraday drops in share prices in more than 20 years following the tax hike announcement, causing them to lose IDR69.48 trillion and IDR27.68 trillion in market capitalization, respectively, according to Morningstar.

Finance Minister Sri Mulyani Indrawati said the government had tried to balance the need to address rising numbers of young smokers and cigarettes’ popularity among Indonesia’s poorest with the possible impact of a tax hike on the livelihoods of tobacco farmers.

She said the excise hike would result in only a 10 percent increase on the labor-intensive domestic hand-rolled cigarette industry. “But for companies whose turnover is over 50 billion rupiah, the increase is relatively higher,” she said.

The Indonesian government has been raising taxes on tobacco products almost every year since 2014, but that has not had a significant impact on smoking rates.

Nearly 70 percent of adult men smoke in Indonesia, according to the World Health Organization.