Tax hikes recommended

Steep increases in cigarette excise taxes, instead of incremental ones, would do a better job of reducing poverty and improving health, according to a story in The Jakarta Globe quoting the director of the University of Indonesia’s Center for Health Economics and Policy Studies (Cheps).

Cigarettes were said to constitute the second largest expenditure after food among the country’s poor, consuming nearly a quarter of their monthly incomes.

The head of Cheps, Budi Hidayat, was quoted as saying that a threefold increase in current cigarette prices would dissuade many from continuing to smoke and would [thereby] allow greater flexibility in the face of fluctuating food prices.

Increasing cigarette prices initially led to a rise in poverty, but after a certain point, the poverty rate started to drop, he said.

A study conducted by the research center found that an increase of more than 112 percent [presumably in cigarette prices] would be sufficient to reduce the poverty level in the country.

However, if the government imposed a 150 percent tax on tobacco, which would increase the average price of a pack of cigarettes to Rp25,000 (US$1.90), two million people would be lifted out of poverty, the study was said to have found.

And, of course, there would be a payback for government revenues. A 150 percent excise tax would add Rp200 trillion to the state coffers over five years.

Budi said that, conversely, the 10.54 percent increase in tobacco excise that the government planned to impose this year would increase the number of people living in poverty by 0.16 percent to 29 million people.