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TAX - JAKARTA. The World Health Organization (WHO) stated that the number of active smokers in Indonesia could reach 96.5 million by 2025. This could happen if domestic tobacco control remains weak. The cheap prices and easy access of cigarette products in Indonesia also make children and teenagers vulnerable to become active smokers.
Public Policy Researcher and anti-corruption activist Emerson Yuntho called for the Ministry of Finance to revoke the Indonesian Director General of Customs and Excise Regulation (DGCE Regulation) Number 37/2017 that allows cigarette manufacturers sell at a Consumer Price or the price for the end consumer below the 85% of the Banderole Price or the price printed on tax stamp, provided that the cigarette are sold in less than 50% regions of the Directorate General of Customs and Excise office.
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He believes that this policy could potentially reduce state revenue from the Corporate Income Tax sector. The potential of the tax losses is predicted to increase every year in accordance with the government decision to increase the cigarette excise tariff and minimum banderole price every year. Based on a basic simulation, the potential of state losses from the Corporate Income Tax from cigarette companies could reach Rp2.6 trillion annually.
“This is very ironic, because it happens at the time when the government is attempting to boost state revenue to cover many expenses,” said Emerson during Indonesia Budget Center virtual discussion, Jakarta, Thursday (18/6).
The calculation of potential state losses was obtained from an initial simulation to the research for Institute for Development of Economics and Finance (INDEF) research in 2019. The research sampled 1,327 cigarette brands sold with consumer price under the banderole price. As a result, the potential state losses from corporate income tax amounted to Rp1.73 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.
Therefore, he deemed that grouping of business clusters in cigarette industry needs to be a considered so that small and medium-scale cigarette manufacturers will not die out in facing the big-scale cigarette manufacturers.
“These small-scale manufacturers have little way of competing and they could suffer high losses eventually, and thus we need to see consider this loophole in that regulation,” he added.
Meanwhile, Head of the Center for State Revenue Policy (PKPN) of the Fiscal Policy Agency (BKF) of the Ministry of Finance, Pande Putu Oka Kusumawardani, stated that the minimum consumer Price of 85 percent of the Banderole Price under Finance Ministry Regulation No. 152/2019 did not aim to allow discount for cigarettes.
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“Actually, we need to clarify that cigarette discount is not an appropriate terminology. This policy is a reflection and consideration of producer-to-consumer process chain that requires costs, so the government regulates consumer Prices below the banderole price,” Pande said.
Regarding the leniency for 50% areas under DGCE office stated in DGCE Regulation No. 37/2017, she said that all inputs would certainly be reviewed whether this mechanism was still operating in the field or needed adjustments.
“We will seriously consider input or aspirations from all parties regarding tobacco excise policies, including Finance Ministry Regulation No. 152/2019 or DGCE Regulation No. 37/2017,” she said.
