Indonesian Finance Minister Purbaya Yudhi Sadewa is exploring the introduction of an additional excise tier for cigarettes, a move intended to provide a legal pathway for certain illegal tobacco products. While economists see potential fiscal benefits, including expanded tax revenue and improved enforcement legitimacy, experts caution that outcomes are not guaranteed. Imanina Eka Dalilah, a senior researcher at Universitas Brawijaya, said that if the new tier simply shifts consumption from higher-taxed legal products to lower-tax brackets, it could cannibalize revenue rather than expand the tax base. She added that law-abiding manufacturers could face new competition from previously illegal producers, creating a moral hazard if past compliance is effectively penalized by regulatory changes. According to Dalilah, the success of the policy hinges on careful design: it should be transitional, tightly regulated, and include safeguards to prevent consumption shifts and revenue erosion, ensuring that compliance is rewarded and illegal actors remain deterred. Without such measures, the excise tier risks becoming a short-term fix that could destabilize the legal tobacco market.
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Indonesia Considers Special Tax for Illegal Cigarettes
Indonesia’s government proposed introducing a special excise tariff for illegal cigarettes as a way to curb illicit trade and boost state revenue, but the plan has sparked concern among industry players over potential market distortions and policy uncertainty. Finance Minister Purbaya Yudhi Sadewa said details are still being finalized, explaining the measure would mainly target small-scale local cigarette producers, while foreign illicit products would continue to face strict enforcement. He estimated that formalizing illegal production could generate trillions of rupiah in additional revenue, though discussions on fiscal impacts are ongoing and will require approval from the House of Representatives, a process that could take time, according to The Jakarta Post.
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Indonesia Busts Lab Filling Vapes with Narcotics
Indonesia’s National Narcotics Agency (BNN) detained two Malaysian men suspected of producing e-cigarette liquids containing etomidate, an intravenous anesthetic drug, at an apartment in South Jakarta. The arrests were made after investigators identified the location as an illegal laboratory used to process the drug for use in vape products.
BNN Director General of Enforcement Aldrin Hutabarat said intelligence showed one suspect entered Jakarta carrying around 3,000 empty vape cartridges before heading to the apartment. During the raid, authorities found the two men actively mixing etomidate liquid for filling into cartridges and seized the drug, vape components, cash, and mobile phones. One suspect reportedly admitted being paid Rp 6.4 million ($377) to travel to Indonesia.
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Indonesia Hopes Simplifying Excises Will Reduce Illicits
Indonesia is preparing to introduce an additional cigarette excise tax layer in 2026 as part of efforts to curb illegal tobacco and draw illicit producers into the formal market. Finance Minister Purbaya Yudhi Sadewa said the proposal is still under discussion but could be confirmed soon, with regulations potentially issued next week. The move is intended to complement the gradual simplification of the cigarette excise (CHT) structure, which has been reduced from 19 tiers in 2009 to eight under the current framework, while pairing incentives with stricter enforcement for non-compliance.
Authorities underscored the scale of the illicit trade challenge, noting that Customs and Excise has seized around 1.4 billion illegal cigarettes through more than 20,000 enforcement actions since the beginning of 2025, including a recent seizure of 160 million cigarettes from a warehouse in Pekanbaru, Riau. In value terms, illegal cigarette seizures reached Rp9.8 trillion ($564 million) in 2025, up 2.1% year on year, highlighting the government’s intensified crackdown alongside planned excise reforms.
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Indonesia Sounds Alarm on Drug-Laced Vapes
On December 16, Indonesia’s National Narcotics Agency (BNN) warned of the growing circulation of drug-laced vape cartridges containing the anesthetic etomidate, following a major seizure at Soekarno-Hatta International Airport. Authorities intercepted 8,500 illicit vape refill cartridges smuggled through air cargo routes on November 12 and arrested a distributor in a joint operation by BNN and the National Police.
BNN said etomidate, now classified as a Schedule II narcotic, poses serious health risks when inhaled through vaping due to the lack of dosage control. Officials warned that repeated use can lead to dependency. BNN cited national data showing 1.73% of Indonesia’s population (about 3.3 million people) have been exposed to drugs, and claimed that the country’s estimated 70 million smokers increase vulnerability to drug-laced vape products.
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Great Wall Cigar Explores Partnerships with Cuba, Morocco, Indonesia
A delegation from China Tobacco Sichuan’s Great Wall Cigar Factory recently visited the embassies of Cuba, Morocco, and Indonesia in Beijing to discuss industrial cooperation and trade expansion.
At the Cuban embassy, talks with Minister Counsellor Igor Montero Brito focused on collaboration in tobacco breeding, processing technology, and cultural exchange. The Cuban official highlighted cigars as a national symbol comparable to China’s silk and porcelain.
In Morocco, discussions centered on leveraging the country’s strategic location to create a regional hub for cigar processing and distribution. In Indonesia, the delegation received confirmation of a recent commercial order, reflecting growing bilateral trade. Great Wall Cigar holds about 50% of China’s handmade cigar market and nearly 70% of its high-end segment, exporting to 28 countries.
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New Indonesian Factory Fuels KT&G’s Expansion
KT&G told Hankooki.com today (November 12) that its Indonesian factory is scheduled to be completed within the month and should begin full-scale operations in February 2026. The 190,000-square-meter facility, which will produce cigarettes and capsule products for export across Southeast Asia and beyond, is expected to boost KT&G’s annual production capacity in Indonesia to 35 billion cigarettes, making it the company’s largest overseas manufacturing base.
The move follows the launch of KT&G’s Kazakhstan plant in April, which can produce 4.5 billion cigarettes annually and serves as a key export hub for the Eurasian market. With both sites operational, KT&G aims to produce over half of its total output overseas in the medium to long term, improving global supply efficiency.
The company also plans to expand into new markets like Jordan and Bangladesh, while growing its next-generation product (NGP) segment and nicotine pouch business through a strategic partnership and joint acquisition with Altria.
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Indonesia Incentivizing Illegal Cigarette Makers to Go Legit
Indonesian Finance Minister Purbaya Yudhi Sadewa announced plans to implement a special tax aimed at curbing the circulation of illegal cigarettes, particularly from China and Vietnam, and supporting domestic legal producers. The policy will include the establishment of a Tobacco Industry Zone to encourage illegal domestic producers to legalize operations under certain tariffs, and potentially be operational by December 2025.
Purbaya acknowledged that high cigarette taxes inadvertently fueled the black market, so that while tax revenue decreased, smoking prevalence—and the health problems associated with it—remained unchanged.
“If that’s the case, then what is the policy for?” said Purbaya. “We are killing the domestic legal cigarette industry, but reviving illegal cigarettes from abroad. In that case, I lose. I don’t want to lose.”
The government will offer assistance to small illegal producers to help them enter the legal market while maintaining strict enforcement against those who continue illicit operations. Purbaya stressed that the approach balances enforcement with opportunities for legalization, ensuring domestic producers are protected while creating a more transparent and regulated cigarette market.
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Indonesian DM Calls for Worker Protection Amid Tobacco Industry Regulation
Indonesia’s Deputy Minister of Manpower, Afriansyah Noor, said the country needed new regulations in the tobacco industry that prioritized the welfare of workers and farmers. Speaking today (October 22), Noor said the industry must deliver tangible benefits to the nation and its workforce, rather than serving only business interests.
Highlighting the sector’s labor-intensive nature, Noor pointed out that millions of workers are involved, from farmers to factory employees. He stressed that any policy changes causing layoffs must guarantee workers’ rights, severance pay, and social protection. Noor also proposed allocating a portion of cigarette excise tax funds to create a social protection scheme for tobacco workers affected by industrial shifts.
Addressing emerging products like e-cigarettes, Noor emphasized that regulations must ensure workers are not sidelined by market changes. He called for inter-ministerial coordination in drafting tobacco industry policies that balance economic, health, agricultural, and labor considerations, ensuring the sector remains sustainable while safeguarding livelihoods.
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Indonesia Offers Amnesty to Bring Illicit Tobacco Makers into Fold
Indonesia’s government dropped plans to raise tobacco excise taxes and is instead offering amnesty to illegal cigarette manufacturers, signaling a major policy shift away from years of punitive enforcement. Finance Minister Purbaya Yudhi Sadewa said the new strategy aims to bring unregistered producers into the formal economy, where their output can be monitored and taxed. The move comes as the government acknowledges that repeated excise hikes and raids under the previous “Gempur Rokok Ilegal” campaign failed to meaningfully reduce demand, while pushing small manufacturers underground.
The policy rethink reflects a more pragmatic response to weak purchasing power and slow job creation, with officials noting that tobacco remains Indonesia’s single largest source of excise revenue and a vital employer across the supply chain—from farmers to factory workers and small retailers. Purbaya emphasized that the industry’s economic role must be balanced with health goals, warning that overregulation during a fragile labor market could trigger widespread job losses.
By formalizing more players in the industry, the government hopes to expand its tax base, stabilize employment, and strengthen oversight—marking a strategic pivot from symbolic crackdowns toward sustainable regulation and fiscal recovery.