Finance Minister Purbaya Issues Ultimatum to Illegal Cigarette Producers: Pay Excise or Face Factory Closures
Finance Minister Purbaya Yudhi Sadewa has issued an ultimatum to illegal cigarette producers. He emphasised that the government will not legalise illegal cigarettes and urged business operators to enter the official system by paying excise duties. Accordingly, the government is preparing an additional layer in the tobacco excise (CHT) structure.
“They will not be legalised just like that. They must enter the system and pay excise. We are giving them a chance. If not, they will be shut down,” he stated at the Attorney General’s Office complex in Jakarta last Friday.
Purbaya targets the policy to be operational by May at the latest, so that state revenues can promptly increase, while providing a basis to ban the circulation of duty-free cigarettes. “We want it to be running by May at the latest, so that revenue comes to us and I can truly prohibit illegal cigarettes,” he said.
Through this scheme, illegal cigarette operators are still given room to switch to the legal route. However, the government assures it will take firm action against those who continue to operate outside the rules.
“Later, we will give them a chance to operate in the legal market. If they don’t want to, we will close them down,” Purbaya stated.
To date, the circulation of illegal cigarettes has been a source of state revenue leakage while pressuring legal business operators. Duty-free products are sold cheaper, creating unfair competition, particularly for small and medium-sized enterprises in the tobacco industry.
With the addition of the excise layer, the government hopes to create a bridge for illegal operators to enter the official system, while fostering fairer and healthier business competition. Purbaya noted that the policy proposal has been finalised and will soon be discussed with the DPR. However, he has not detailed the potential additional state revenue from this measure.
“If it is truly as large as claimed, its contribution would be enormous. But we’ll see. I don’t want to speculate before we observe it for a month or two once implemented,” he said.
Meanwhile, the Director General of Economic and Fiscal Strategy at the Ministry of Finance, Febrio Kacaribu, stated that the policy formulation is approached legally. The government is also considering its impact on labour-intensive sectors, including the tobacco industry.
According to him, opportunities for businesses to operate legally remain open as long as they fulfil excise obligations, to maintain a balance between state revenues and business sustainability. For information, the CHT tariff structure has been simplified from 19 layers in 2009 to 8 layers in 2022. The latest provisions are regulated in Minister of Finance Regulation Number 97 of 2024.