Indonesia's Tobacco Industry Confidence Shrinks due to Tax Increase and Regulations

According to a report by Bisnis.com on October 31, the Indonesian Ministry of Industry has revealed that confidence in the tobacco processing industry (IHT) has begun to shrink due to the increase in cigarette taxes and the ongoing dispute over the government decree draft (RPP) regarding the industry.

Edy Sutopo, the Director of the Beverage, Tobacco, and Mint Beverage Industry at the Indonesian Ministry of Industry, has stated that cigarette taxes will increase by 10% in 2023 and 2024. In a press release from the Industrial Association (IKI) in October 2023, Edy expressed, "In the first half of this year, the cigarette industry gradually increased cigarette prices, affecting people's purchasing power and resulting in a significant decrease in new orders at the end of this year." He also mentioned that tobacco industry operators are now choosing to raise cigarette prices as profit margins are becoming lower. The increase in cigarette prices has led to a decrease in orders and a decline in demand at the end of this year.

According to reports, the Tobacco Excise Tax (CHT) is one of the largest contributors to Indonesia's national tax revenue. In 2022, the revenue from tobacco excise tax surpassed the initial target, reaching over 218.62 trillion Indonesian rupiah.

In addition, the RPP of the Health Law, which is an imperfect regulation, may suppress the tobacco industry. Eddie said, "This has also led some producers to be more inclined to empty existing stocks rather than increase production. Therefore, operators in these industries are temporarily in a wait-and-see mode, awaiting the next steps in the development of the RPP bill.

Certainly, this health measure could impact the operation of the tobacco industry. This includes equating tobacco with drugs and regulating the tobacco industry, including standardizing packaging for tobacco products and setting guidelines for advertising and promotion.