Clove cigaretteexcise-related price must be halted: Gappri

Evi Mariani, The Jakarta Post, Jakarta

The Association of Clove-Blended Cigarette Manufacturers (Gappri) is urging the government to delay for at least two years a plan to increase its excise revenue by hiking the price of clove cigarettes in order to help the ailing industry recover.

"We're not asking the government to cut cigarette prices, but to delay raising them. Don't hike the prices for the next two years at least and give us a chance to recover from dwindling demand on the cigarette market," said Ismanu Soemiran, the chairman of Gappri.

The cigarette industry, comprising clove and non-clove cigarette manufacturers, contributes 98 percent of the government's excise revenue. The remainder is contributed by the excise on alcohol. This year's excise revenue is estimated at Rp 27.9 trillion (about US$3.3 billion), more than 10 percent of the projected tax revenue of Rp 241.7 trillion.

Because the government has to service its foreign and domestic debts, it is trying to increase its revenue by, among other ways, raising the price of cigarettes.

Since 1999, the government has hiked clove cigarette prices five times. For example, the price of machine-made clove cigarettes has been raised from a range of Rp 110 to Rp 225 per stick in 1999 to a range of Rp 320 to Rp 400 at present.

Meanwhile, people's purchasing power has declined since the financial crisis in 1997. The latest report from the Central Statistics Agency (BPS) shows that the first quarter's household consumption declined by 1.23 percent from the previous quarter. Analysts said the decline was caused by an increase in unemployment.

The number of clove cigarettes produced by Gappri members in 2002 declined to about 170 billion sticks from about 187 billion in 2001. The decline hit the machine-made cigarette market severely, for many smokers shifted to cheaper handmade cigarettes, according to Gappri's report.

For 2003, Gappri has set a conservative target for production. "We will not increase production this year. It is good enough if we can produce the same number of cigarettes as we did last year," he said.

To make ends meet, clove cigarette manufacturers have to comply with market forces by setting retail prices at about 30 percent to 35 percent lower than the excise-related prices set by the government.

"If you buy a pack of cigarettes, take note of the excise- related price on the band. You will find that the set price is higher than the price you have to pay to the vendor," Ismanu said on the sidelines of a hearing with the House of Representatives Commission V for industry and trade affairs.

"So, in the end, the manufacturers are the ones who have to pay the difference," he added.

According to Gappri, the clove cigarette industry, consisting of more than 800 manufacturers, employs more than 300,000 workers.

In 2002, the industry absorbed about 197 million kilograms of tobacco and 98 million kilograms of cloves in 2002.

Gappri groups clove cigarette manufacturers from small to large-sized ones such as PT Gudang Garam and PT Djarum. PT HM Sampoerna was once a member, but it later left the association.

For eyebox

Excise revenue (in trillions rupiah) 1999 8.6 2000 11.3 2001 16.4 2002 20.4 2003 27.9

Clove cigarette production (in billions sticks)

1998 165.4 1999 169.7 2000 182.1 2001 187.3 2002 170.1

Source: Gappri