Excise revenue target for 2003 unattainable: GAPPRI

Dadan Wijaksana, The Jakarta Post, Jakarta

The Association of Indonesian Cigarette Producers (GAPPRI) has appealed to the government to lower its excise revenue target for next year as the industry has been hit by weakening market demand.

GAPPRI chairman Ismanu Soemiran said on Tuesday that the domestic cigarette industry had been reducing production because of weaker demand.

"The government must be realistic," he told The Jakarta Post.

He said that forcing cigarette companies to pay more in excise would lead some to go under and cause more layoffs because of the current business downturn.

The government, in its draft 2003 state budget, plans to rake in some Rp 27.6 trillion (around US$3.4 billion) in revenue from excise, of which Rp 25.9 trillion -- or around 94 percent -- is expected to come from cigarette sales.

The figure is an increase from this year's total excise target of Rp 22.3 trillion.

The rise in excise revenue was in line with the government's plans to boost tax income next year -- totaling Rp 260 trillion, an 18.7 percent increase from this year's target of Rp 219 trillion.

According to Ismanu, the increased excise revenue target for next year was proof that the government had turned a blind eye to the cigarette industry's current difficult situation.

Ismanu added that weaker demand for cigarettes had partly been partly caused by a sharp increase in the price of the products.

Since last year, the government has raised the retail price of cigarettes in a bid to obtain greater excise revenue.

However, the policy seems to have been ineffective, as excise revenue obtained during the first semester of this year only reached Rp 9 trillion, falling short of the Rp 11 trillion target.

There are currently 799 cigarette producers throughout the country, divided into three categories: large, medium-sized and small companies, with a combined total production capacity of some 206 billion cigarettes per year, absorbing more than 200,000 workers.

Of the total, some 700 companies fall into the third category. "It is employees working at these small companies who are threatened if the decline in demand continues. And the government's plan to increase the excise target will only make it worse," Ismanu added.

He said that production had dropped by 20 percent during the first half of this year due to weaker demand.

As stated by President Megawati Soekarnoputri when unveiling the draft 2003 state budget, an increase in tax revenue would be crucial for budget financing as tax income accounts for around three fourth of total state income, estimated to be Rp 327 trillion.