Economist says cigarette pricing policy must consider market structure

Jakarta (ANTARA) - Yusuf Rendy Manilet, an economist at the Center of Reform on Economics (Core), has stated that providing room for the production of cheap cigarettes for lower-middle-income communities needs to be thoroughly assessed by considering the market structure. In a statement in Jakarta on Tuesday, he noted that the phenomenon of downtrading has been occurring over the past few years and has become one of the significant challenges in implementing tobacco excise policy. According to Yusuf, the increase in excise rates followed by price differences between product groups has encouraged some consumers to switch to cheaper cigarettes. “Therefore, any policy that opens up greater space for low-priced products needs to consider its impact on the market structure,” he said. He assessed that if cheap cigarette options become increasingly available, the tendency for consumers to shift to lower-priced products could potentially continue. This condition, according to him, needs to be a consideration in formulating excise policy so that the goals of controlling consumption while optimising state revenue can proceed in a balanced manner. A similar view was expressed by Rumayya Batubara, an economist at Airlangga University. According to her, policies for the tobacco industry need to consider various challenges faced simultaneously, ranging from regulatory uncertainty, excise increase pressures, the downtrading phenomenon, to the circulation of illegal cigarettes. She cautioned that if pressure on the industry continues to mount without adequate mitigation, the impact will not only be felt by industry players but could also affect economic activity in tobacco-producing regions through the weakening of supply chains, public consumption, and employment opportunities. The downtrading phenomenon itself is one of the issues that continues to be a focus in discussions on tobacco excise policy. The widening price gap between product segments in recent years is considered a distinct challenge for efforts to maintain a balance between state revenue, the effectiveness of consumption control, industry sustainability, and labour protection. The discussion surfaced after Andi Yuliani Paris, a member of Commission XI of the House of Representatives from the PAN faction, during a Hearing Meeting with several directors general at the Ministry of Finance, proposed that the government open up space for cigarette production for the lower-middle-income segment. According to her, the high price of cigarettes is driving some people to switch to cheaper illegal cigarettes. Meanwhile, Director General of Customs and Excise Djaka Budi Utama explained that the government is currently facing two main challenges in managing tobacco excise, namely the increasing practice of downtrading or the shift of consumers to lower-priced products and the circulation of illegal cigarettes. According to him, these two factors are affecting efforts to optimise state revenue.