DPR Fears Additional Excise Tariff Layer Could Shake Legal Industry and Burden Fiscal Position

A number of politicians in parliament have voiced concerns about risks arising from the government’s plan to add a new tobacco excise (CHT) layer, intended to draw producers of illegal cigarettes into the legal tobacco products industry (IHT).

Harris Turino, a member of Commission XI of the DPR from the PDI Perjuangan faction, said any change to the excise structure must be considered holistically — from ensuring it does not weaken oversight effectiveness or open new leakage points for state revenue, to avoiding fresh distortions for IHT players that have operated legally all along.

“What matters most is not simply adding or removing a layer, but ensuring the policy design is genuinely effective, measurable, and does not open room for new distortions in the IHT,” he said in a written statement on Friday (10 July 2026).

From the state revenue perspective, Harris warned that an overly complex tariff structure could instead trigger a shift of production to lower-tariff segments, known as downtrading. This shift, he said, has the potential to reduce state revenue.

“In the IHT, an overly complicated tariff structure can sometimes actually encourage production shifting to lower-tariff segments. If this is not anticipated, state revenue could be eroded,” he said.

Meanwhile, from the industry side, he argued that excise policy changes that ignore the stability of the business climate would only pressure the industry’s resilience and fuel the circulation of illegal cigarettes.

“We must also learn that aggressive tariff increases or structural changes in recent years contributed to pressure on the legal industry and gave room for the illegal market to grow,” he said.

“So the balance must be maintained. The state needs revenue, but the legal industry that has been compliant must not lose its resilience,” Harris said.

To resolve the problem of circulating illegal cigarettes, Harris believes what matters is a strong supervision ecosystem, consistent law enforcement, and a rational tariff structure, so that businesses see that entering the legal system is genuinely more profitable and sustainable.

“Otherwise, this policy risks merely moving the problem around without truly addressing its root cause,” Harris said.

Echoing Harris, Thoriq Majiddanor, a member of Commission XI from the NasDem faction, said changes to the tariff structure should in fact adhere to the principles of administrative simplicity and supervision effectiveness.

Furthermore, he said the main objective of excise policy must remain balancing health aspects, business sustainability and fairness, worker protection, and state revenue.

Thoriq viewed supervision effectiveness and law enforcement as remaining the primary factors in reducing the circulation of illegal products, rather than relying on changes to the tariff structure.

“We see the government’s aim of narrowing the space for illegal cigarettes as a positive step. But its success certainly does not depend on the tariff structure alone, but also on supervision effectiveness, law enforcement, ease of compliance, and guidance for businesses,” he said.

Thoriq further stressed that the new CHT policy must not end up harming the survival of businesses that have fulfilled their obligations and absorbed large numbers of workers.

“The DPR will push for every transition policy to be carried out in a measured, data-driven manner, taking into account the real conditions of the industry and the workers who depend on the tobacco products sector,” Thoriq affirmed.

He also cautioned that every policy change must not open room for advantage solely to illegal manufacturers or certain business groups.

“We understand the concerns of parts of the industry. To be clear, Commission XI takes the view that fiscal policy must be able to create a healthy and fair business climate. The industry that has complied with the rules must continue to receive business certainty, while at the same time the state needs to strengthen efforts to eradicate illegal cigarettes,” he said.

Previously, Finance Minister Purbaya Yudhi Sadewa insisted on setting a new tobacco excise (CHT) layer aimed at drawing illegal cigarette producers into legality.

He assured that a thorough study would be conducted before proposing the new cigarette excise layer to the DPR, in line with suggestions from council members.

According to him, the Ministry of Finance has not yet held a consultation meeting with the DPR on the new cigarette excise layer, as the study involving all stakeholders is still under way.

“We haven’t gone to the DPR yet. So if they ask us to study it, we will certainly study it,” Purbaya said when met at the Tanjung Priok port area in Jakarta on Tuesday (23 June 2026).

Nevertheless, Purbaya emphasised that the new layer is needed to accommodate small cigarette producers that have so far operated illegally, so they can become legal producers, as they are not yet within the domestic excise system.

“Most of them are large illegal producers. We must find a way, giving them room to come into legality,” he said.

If the government does not give illegal cigarette producers room to enter the legal business system, he said this would create unfairness, especially if the government were to simply shut down their businesses.

“If we want to close down all the illegal ones now, without giving them the chance to become legal, that wouldn’t be fair to them,” Purbaya asserted.

Purbaya said the policy of creating the new cigarette excise layer would certainly not be perfect from the outset. However, he believes the new CHT structure will effectively eradicate the circulation of illegal cigarettes.

“Even if it later turns out imperfect, it will surely be better than the current system, in which illegal cigarettes circulate far too widely,” Purbaya said.