Government bans new cigarette firms from starting new operations
Government bans new cigarette firms from starting new operations
Rendi A. Witular, The Jakarta Post, Jakarta
The Directorate General of Customs and Excise has temporarily
banned existing cigarette companies from setting up new
subsidiaries or new players from entering the industry, amid
allegations of rampant excise evasion and fraud.
Director General of Customs and Excise Eddy Abdurrahman said
that the directorate had been withholding operating licenses for
new cigarette companies since January this year, because there
was an indication that they were established to evade excise.
"We have decided not to grant operating licenses to those
firms until we are sure that the fraud has been eliminated or
reduced," said Eddy after a hearing with House of Representatives
Commission IX for finance on Tuesday.
Based on the existing regulations, cigarette companies need
the prior approval of the directorate and the Ministry of Trade
and Industry to operate. The companies cannot operate unless they
receive an excise register number issued by the directorate.
Eddy said that the directorate would not issue operating
licenses for new cigarette companies, even if they had received a
go-ahead from the Ministry of Trade and Industry.
The policy would be applied to either existing cigarette
companies planning to establish new subsidiaries or new small-
scale players wishing to enter the industry, he said.
Eddy explained that recently there was an indication that
large and medium-scale cigarette companies established a new
small subsidiary in order to evade excise, as the latter was
based on a company's scale of business.
The larger the company, the more it has to pay in excise.
According to Eddy, currently the directorate had difficulty in
supervising such companies because of their huge numbers and vast
proliferation. Most are located in Central Java or East Java
provinces.
He said that some of the companies had also faked their excise
labels to avoid paying higher excise.
The directorate estimated that the excise evasion and fraud
had caused the state to suffer at least Rp 1 trillion (US$119
million) in losses of excise revenue a year.
Some 98 percent of excise revenue comes from the cigarette
industry, with the liquor industry contributing the remainder.
Under the state budget, the government has set a Rp 27.7
trillion excise revenue target for 2004, up from Rp 26.3 trillion
last year.
The government pledged not to raise excise rates on cigarettes
this year to allow the industry to recover from a slump.
As the excise rate will be frozen this year the government can
only expect to benefit from an increase in excise revenue if
there is an increase in the number of smokers and drinkers.