Additional Tax Layer Viewed as Tool to Rescue People's Industry
The Ministry of Finance’s proposal to add a new layer within the Excise Tax on Tobacco Products (CHT) tariff structure has been criticised as oversimplifying the issue whilst ignoring the structural realities of Indonesia’s national tobacco industry. Gus Lilur, founder and owner of Rokok Bintang Sembilan, contends that adding a layer is not a step backwards but rather a fiscal transition instrument designed to streamline a historically distorted market and address structural business inequalities.
According to Gus Lilur, the debate has thus far been too narrowly focused on retail prices and consumption without examining the industry structure dimension and state revenue implications. He argues that Indonesia possesses a market character distinct from that of the Philippines and other frequently cited reference countries.
“Our industry structure is not uniform. There are large corporations, mid-scale enterprises, and thousands of labour-intensive small businesses. If tariff structure is applied uniformly without transition space, it is not consumption that collapses first but small industry. That is economic fact,” said Gus Lilur on 1 March 2026.
Ministry of Finance data from recent years demonstrates that CHT revenue remains one of the cornerstones of Indonesia’s state budget, ranging above Rp200 trillion annually. However, simultaneously, illegal cigarette circulation continues to pose a persistent problem. Various reports cite rising trends in illegal cigarette distribution in recent years, particularly within the low-price segment.
According to business circles, this phenomenon cannot be separated from an excessively steep tariff structure that creates a substantial price gap between legal and illegal products.
“When the price gap becomes too high, the market seeks loopholes. Adding a layer actually serves to narrow that gap so that small business operators can enter the legal system and the state does not forfeit revenue,” he stated.
Gus Lilur rejects the narrative that an additional layer automatically means flooding the market with cheap cigarettes. He contends that consumption control remains contingent upon aggregate tariff policy and distribution oversight rather than solely on the number of layers.
“A layer is a classification instrument, not a discount. What determines affordability or costliness is the tariff itself, not the number of layers. Do not reverse the logic,” he emphasised.
He also disputes the assumption that adding layers contradicts the spirit of the Excise Tax Law. He believes Law No. 39 of 2007 concerning Excise actually grants the government flexibility to regulate tariff structure according to economic and social conditions.
“The law mandates consumption control and revenue optimisation. If reality shows that plain tobacco is increasing, then the state is obliged to adjust tariff design. That flexibility is part of the law’s mandate,” he stated.
He further highlighted that overly aggressive tariff simplification without considering business structure could result in industry consolidation into the hands of major players. In the long term, such circumstances risk reducing competition and eroding the regional tax base dependent on the tobacco products industry.
From an employment perspective, the tobacco products industry sector still absorbs millions of direct and indirect workers, ranging from tobacco farmers and hand-rolling workers to distribution networks.
“If small industry collapses due to oversimplified policy without transition, who bears the consequences? The state must seek balance between public health, state revenue, and the sustainability of people’s economy,” he said.
Responding to concerns about children and vulnerable groups accessing cheap cigarettes, Gus Lilur stressed that the most effective instrument remains distribution oversight and sales restrictions rather than merely changing the tariff layer structure.
“The issue of children’s consumption is not solely about tariff layers. It concerns retail oversight, education, and law enforcement. Simplifying layers without addressing root causes could actually worsen the situation,” he stated.
He also reminded that fiscal policy must remain realistic about market dynamics. If illegal cigarettes continue to increase, the state not only loses potential revenue but also relinquishes control over production and distribution standards.
“Illegal cigarettes represent zero tax and zero control. If a portion of the illegal cigarette market can be drawn into the legal market through more adaptive tariff design, the state actually strengthens its oversight,” he said.
According to him, the discourse on adding layers should be viewed as part of a phased reform rather than a reversal of policy direction. He encourages the government to open dialogue based on data and fiscal simulations before making a final decision.
“This debate should not be built upon slogans. Build it upon data: price elasticity, illegal trends, labour impact, and revenue projections. If everything is calculated comprehensively, the public will see that adding a layer is not an automatic threat to either health or fiscal outcomes,” he concluded.