Discounted cigarette policy potentially reduces tax revenue up to Rp 2.6 trillion

Assuming there would be an average increase of 52.1% of consumer price and Banderole price in the machine-made cigarette segments (in accordance with Finance Minister Regulation No. 152/2019 on Tobacco Product Excise Tariffs for 2020) this year, the potential losses of state revenue would rise to Rp2.6 trillion.

Aside from the potential of state losses from Corporate Income Tax, the existence of discounted cigarettes or cheap cigarettes, thanks to the DGCE Regulation No 37, 2017, could also increase the number of cigarette consumption especially among the children and also increasing poverty.

Even though until now, the public has not been made aware which academic paper was used as the basis of the regulation stated in the DGCE Regulation no 37, 2017. Therefore, a public suspicion arose that the cigarette discount policy was a part of compromise between the government and the cigarette manufacturers.

On that reason, Emerson recommends the Indonesian Corruption Eradication Commission (KPK) to conduct studies, provide recommendations, and offer guidance to the government especially Ministry of Finance and Directorate General Customs and Excise, to revoke any policies that could potentially cause state losses.

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INDEF Executive Director Tauhid Ahmad asserted that if the cigarette discount policy continues, then potential state revenue amounting to trillions of rupiah will be lost. Circulation of discounted cigarettes results in suboptimal corporate income tax collection. He recommended the policy to be reviewed if the government wants to increase Corporate Income Tax collection.

“This policy makes state revenue collection is not optimized at a time when the government is pushing to collect even more tax revenue from cigarette (industry),” Tauhid said.

Until today, cigarette excise revenue is still the primary source of state income even in the middle of crisis and since the state requires fresh cash injection, review of the cigarette discount policy will optimize the collection of any kind of tax revenue from cigarette industry.

In addition, the cigarette discount policy is being exploited by large-scale cigarette manufacturers. If the government continues the cigarette discount policy, the potential of state revenue losses will be even higher.