Goodbye to Illegal Cigarettes! Purbaya Receives DPR Approval to Implement a New Layer of Tobacco Excise Duty

Jakarta, CNBC Indonesia - Finance Minister Purbaya Yudhi Sadewa says he has secured approval from the House of Representatives (DPR) to implement a new layer of tobacco excise duty (CHT), aimed at drawing illegal cigarette producers into the legal market. He said he had held a meeting with the DPR to discuss the rollout of the new CHT layer, though he did not specify when or where the meeting took place. ‘It has gone to the DPR, they have agreed,’ Purbaya told reporters at his office in Jakarta on Wednesday, 20 May 2026.

According to Purbaya, implementation now hinges on finalising the preparation of ministerial regulation (PMK). In addition, he still must report to President Prabowo Subianto on the policy details, including the tariff levels. ‘The PMK will come first, then I must report to the president as well,’ he said.

Separately, Harris Turino, a member of Commission XI of the DPR, said he has yet to receive detailed explanations regarding the government’s proposed new layer. ‘We still don't know what the new layer will look like,’ he said.

Beyond that, he said that the government’s plan to implement a new CHT layer with a low tariff to encourage illegal cigarette producers to become legal has good intent to boost state revenue, provided the moral hazard loophole can be closed. He explained that the potential moral hazard would lie in the process of selling and buying the tobacco excise stamps among small cigarette producers, rather than with large producers that already operate with their own rate tiers.

‘The idea might raise CHT revenue, but one must realise the moral hazard. The illegal cigarette trade has many entrants with small capacities. For instance, if one capacity is 100, they buy excise stamps for 600, then 500 are sold again. To whom? To a higher-tier small producer. It could actually reduce tax revenue,’ he said.

The potential practice of cheap excise stamps trading between small producers will be a challenge for the government going forward. Therefore, he argues, such potential moral hazards must be considered carefully before the government sets an additional tariff layer.

If the government cannot curb this moral hazard, the added layer risks undermining the effectiveness of the tariff; especially if it does not actually reduce illegal circulation and instead adds complexity to field oversight.

‘So it won't reduce illegal activity. In my view, avoid adding layers if the moral hazard is like that,’ Harris said.

Harris argued that the government’s primary focus should remain on eradicating illegal cigarettes; if it cannot reform illegal producers, ‘not open new schemes that could be exploited by certain parties. Our idea is that illegal cigarettes must be eradicated in any case,’ he emphasised.