Finance Ministry Warns of Illegal Cigarette Surge Amid Proposed Nicotine and Tar Limits

The Ministry of Finance (Kemenkeu) has warned of a potential surge in illegal cigarette circulation if regulations on nicotine and tar limits in tobacco products are implemented. Policy analyst Sarno from the National Revenue Policy Centre of the Fiscal Policy Agency stated that any tobacco sector regulations must undergo Regulatory Impact Assessment to avoid broader fiscal impacts. Government revenue from tobacco excise duty has fluctuated in recent years, reaching Rp216-218 trillion in 2022, but latest data shows it has dropped to around Rp206 trillion. The decline in revenue has been influenced by factors such as consumers shifting to cheaper products (downtrading) and weakened purchasing power. A policy restricting tar to a maximum of 10mg and nicotine to 1mg per cigarette could further pressure tobacco excise revenue. ‘We urge a strengthened Regulatory Impact Assessment, meaning a more comprehensive review across all aspects, particularly concerning tobacco farmers’ income which is almost certain to be affected,’ Sarno said in a statement on Friday, 29 May 2026. Besides affecting government revenue, the Ministry of Finance is also concerned about a potential rise in illegal cigarette consumption if regulations are too strict without adequate oversight. According to Sarno’s survey data, the prevalence of illegal cigarettes rose from 6.9% in 2023 to 13.9% in 2025, directly impacting government revenue as illegal products do not contribute excise duty. ‘If regulations are too strict, smokers will switch to illegal cigarettes, increasing their prevalence, reducing government revenue, and boosting illegal circulation. That’s our concern,’ he said. The Ministry of Finance also highlighted industry concerns over the Health Ministry’s proposal for plain packaging, which could complicate on-the-ground monitoring as legal and illegal products may appear similar. Sarno added that Indonesia’s tobacco, which has relatively high nicotine content due to geographical factors, must be considered in new regulations.