Indonesia Imposes Tax and Price Restrictions on E-Cigarettes and Tobacco Products

The Indonesian government has issued regulations regarding the consumption tax and retail price restrictions for electronic nicotine delivery systems (ENDS) and other tobacco processed products (TPP) for the years 2023 and 2024.

The Minister of Finance, Sri Mulyani Indrawati, has released PMK 192/2022, which states that PMK 193/2021 needs to be revised and improved in accordance with the development and legal requirements of the tobacco consumption tax (CHT) sector. She also discussed policies related to the REL and HPTL consumption taxes with DPR.

The government and the DPR have agreed on the consumption tax revenue target for 2023 on September 29th, 2022, and optimized an alternative policy to achieve the revenue targets in 2023 and 2024 on December 12th, 2022, as stated in consideration of PMK 192/2022, quoted on Monday, December 19th, 2022.

The government and the Democratic People's Republic have agreed to an average annual increase of 15% and 6% in the consumption tax for REL and HPTL over the next two years. Additionally, the consumption tax for each variant of HJE retail sales packaging will be adequately applied and personalized features will be provided for the consumption tax segments of REL and HPTL, simplifying their management.

The PMK 192/2022 has made changes to Article 4 regarding the determination of CHT rates. Under the previous regulation, it only specified that the tariffs on domestically produced and imported CHT were determined based on the amount in rupees per milliliter or gram unit, and provided detailed information on the consumption tax rate according to the type of tobacco product.

At the same time, PMK 192/2022 provides more detailed regulations. Tariffs on domestically produced and imported CHT are determined using rupee amounts for each milliliter of open system liquid REL tobacco products, as well as for liquids contained in tobacco product boxes in closed system liquid REL form.

The metric units for the amount of nicotine in tobacco products in solid REL form present in the stems or capsules of tobacco products; and in the HPTL form of tobacco products, are measured in milliliters for closed system REL tobacco products and grams for the tobacco solid in stems or top capsules in REL form, rounded to the nearest tenth unit.

The latest government regulation, PMK 192/2022, has removed the eighth article of PMK 193/2021. The former article stated that if a manufacturer or importer fails to use the designated consumer tax stamp order file for six consecutive months, the CHT tariff rule would be deemed invalid. Additionally, if a factory exports tobacco products using a document that declares taxable goods as exempted, without paying the required consumer tax for export purposes, it would result in a violation of tax laws.

Additionally, in the section between chapter III and chapter IV, there is chapter III A which pertains to tobacco product branding. Article 9A specifies that the office responsible for setting CHT tax rates provides the tobacco product brand. The tobacco product label consists of a sequence of letters and/or numbers made up of several characters, usually taken from the manufacturer/importer's name and other information related to consumption tax and other taxes.

Information related to consumption tax and other taxes should include at least the consumption tax rate, packaging content, marketing purpose, and physical form of consumption tax stamps, which are used to differentiate tobacco product brands owned by manufacturers or importers. The procedure for identifying tobacco product brands will be determined by the director general of the customs department.

Starting from January 1, 2023 until December 31, 2023, the Customs Tariff (CHT) and the Minimum Taxable Price (HJE) per unit of every type of domestic and imported tobacco product will be implemented. This includes every type of tobacco product for the year 2023. Likewise, for the year 2024, each type of tobacco product will be subject to the CHT and Minimum Taxable Price starting from January 1, 2024.

According to Article II, Section (3) of Regulation PMK 192/2022, "This ministerial-level regulation comes into effect on the date of its promulgation [December 15, 2022].