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TAX - JAKARTA. The government's efforts to reduce the number of smokers in Indonesia are hampered by the tobacco excise tariff policies that are contradictory with public health. One of them is the complicated tobacco excise tariff structure that makes cigarettes remain affordable. As a consequence, the smoking prevalence in Indonesia remains high and keeps increasing every year.
Policy Director of Center for Indonesia’s Strategic Development Initiatives (CISDI) Olivia Herlinda said that simplification of cigarette excise tariff structure should be carried out as soon as possible. Simplification becomes relevant amidst the COVID-19 pandemic, where the country needs a higher budget for the national economic recovery program.
“Simplification of the cigarette excise tariff structure in a gradual manner will reduce the variance of cigarette pricing in the market, especially the ones which are still too cheap. This is to make smokers could not easily switch to cheaper cigarettes whenever cigarette price is increased, because the type of cigarette products are not as varied,” said Olivia.
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CISDI hoped that the cigarette excise tariff structure simplification roadmap that once implemented by the government in 2018 could be implemented once again gradually. Furthermore, simplification has also been mandated to the National Medium Term Development Plan (RPJMN) 2020-2024.
“This year is the year for the government to conduct simplification. Aside from controlling consumption, simplification of the excise tariff structure groups will also increase state revenue from excise tariffs that would be needed for economic recovery,” she explained.
Olivia also said that the complicated excise tariff structure will create tax avoidance opportunities for the giant cigarette manufacturers by paying cheaper excise tariffs.
“The complicated excise tariff structure also makes it difficult for Customs and Excise to carry out monitoring. In addition, the complicated excise tariff structure also allows giant cigarette manufacturers to create product segmentation with different brands with the production volume that is adjusted to the lower tier production limit. This, in turn, will cause small-scale cigarette manufacturers to collapse,” said Olivia.
Head of Social Security Research Center of University of Indonesia (PKJS-UI) Aryana Satrya echoed Olivia's statement, saying that the target of reducing smoking prevalence in Indonesia has not been optimized because the policies to control cigarette consumption have not been carried out consistently, significantly, and synergistically.
“Aside from cigarette excise tariff increase, it should also be accompanied with the increase of RSP and cigarette excise tariff structure simplification,” said Aryana.
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He said the National Development Planning Agency (Bappenas) 2021’s scenario shows that if the cigarette excise tariff increase is accompanied by cigarette excise tariff structure simplification to 3-5 tiers, it will increase state revenue, as well as achieving the youth smoking prevalence target at 8.7% by 2024.
“The imposition of cigarette excise tariff in Indonesia is still varied because of the high number of excise tariff groups. This makes cigarette prices to be varied and allows the people to purchase cheaper cigarettes, and therefore tobacco products excise tariff structure simplification is required,” he stressed.
Aryana said that simplifying the excise tariff structure will be important to reduce cigarette consumption because it will affect the pricing variance of cigarettes in the market. “Diminishing the cigarette pricing variance in the society will make cigarettes unaffordable for children, teenagers, and the impoverished. This will have an impact on consumption control,” he said.
Separately, Economist Faisal Basri said that the government should have carried out a breakthrough to make cigarettes unaffordable. “To reduce cigarettes affordability, excise tariff policies should be accompanied with the tobacco excise tariff structure simplification,” Faisal said during an online event “2021 World No Tobacco Day, titled “Complex Cigarette Excise Tariff Structure versus Healthier Indonesia by Visi Integritas in Jakarta, Monday (31/5/2021).
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Faisal Basri agreed with the Bappenas planning that the tobacco products excise tariff simplification should be carried out to reduce the tiers to 3-5 tiers. Previously, the government once planned tobacco excise tariff structure simplification to be carried out gradually in 2017 from 12 layers to become 5 layers, but the policy was canceled midway.
This, according to Faisal, was due to lobbying by cigarette manufacturers. “In Indonesia, there are many cigarette manufacturers that limit [their production volume] below their supposed limit in order to pay a cheaper excise tariff, and this is especially true for foreign manufacturers. They are even multinational companies,” said Faisal. "Cigarettes are cigarettes. In any kind of form, its [circulation] must be controlled,” he said.
