Government raises cigarette retail prices by 15%
Government raises cigarette retail prices by 15%
Urip Hudiono, The Jakarta Post, Jakarta
Starting July 1, die-hard smokers will have to dig deeper into
their pockets when the government increases the retail price of
cigarettes by 15 percent in a bid to raise excise revenue.
"I have signed the decree for the price increase today, which
will come into effect on July 1," Minister of Finance Jusuf Anwar
said on Wednesday.
He argued that the government's decision -- which has caused a
stir among the country's tobacco industry since his statement a
few weeks ago -- was appropriate as it had been three years since
the government raised the price of cigarettes.
"The price increase is reasonable if you take into account the
recent rise of inflation and worker wages in the country," he
said. "The price increase will not hurt producers, but will
surely benefit the state through an increase of excise revenue."
Jusuf reiterated that the decision would be in line with
Indonesia's ratification of the Framework Convention on Tobacco
Control (FCTC), an international treaty requiring signatory
countries to limit cigarette advertisements and regularly
increase their prices and excise duties.
"Besides increasing state excise revenue, the policy is
expected to discourage smoking in the country, particularly in
preventing new smokers from the younger generation," he said.
Some 70 percent of the country's 220 million population are
addicted to smoking, which is responsible for more than 50,000
deaths here each year.
A study by the Ministry of Health suggests that a smoker can
spend more than Rp 1 million (US$105) per year on cigarettes if
the market price is Rp 3,000 per pack. The study also says that
cigarette-related ailments cause the state losses of Rp 20
trillion per annum.
In its proposed revision of the 2005 state budget, the
government increased its excise revenue target to Rp 31.4
trillion this year -- or 1.2 percent of the gross domestic
product (GDP) -- from the previous target of Rp 28.9 trillion.
The raise is among the government's attempts to balance likely
ballooning fuel subsidies that could result in the widening of
the budget deficit.
A cigarette retail price raise would enable the government to
generate more money as the excise duty it charges cigarette
manufacturers is based on the final retail price.
The country's tobacco industry suffered a severe blow in 2002,
when the government hiked cigarette excise duties by 20 percent,
causing production to drop from 220 billion cigarettes to 190
billion.
The Association of Indonesian Cigarette Producers (Gappri)
recently warned that a similar scenario could unfold if this
year's planned price increase reached 20 percent, therefore
suggesting the raise only be by a maximum of 10 percent.
The finance ministry's Director General of Customs and Excise
Eddy Abdurrachman said the government had carefully decided on
the price hike, taking into account its impact on the country's
cigarette production as well as employment in the tobacco
industry.
Eddy said that the 15 percent price increase would only
downsize production to 214 billion cigarettes, from a previously
estimated 219 billion.
"This is of course a drop from the estimated figure, but still
a rise from last year's 203 billion," he said. "The price raise
itself is expected to increase this year's excise revenue by 9.9
percent to Rp 32 trillion, and next year to Rp 35 trillion."
Urip Hudiono, The Jakarta Post, Jakarta
Starting July 1, die-hard smokers will have to dig deeper into
their pockets when the government increases the retail price of
cigarettes by 15 percent in a bid to raise excise revenue.
"I have signed the decree for the price increase today, which
will come into effect on July 1," Minister of Finance Jusuf Anwar
said on Wednesday.
He argued that the government's decision -- which has caused a
stir among the country's tobacco industry since his statement a
few weeks ago -- was appropriate as it had been three years since
the government raised the price of cigarettes.
"The price increase is reasonable if you take into account the
recent rise of inflation and worker wages in the country," he
said. "The price increase will not hurt producers, but will
surely benefit the state through an increase of excise revenue."
Jusuf reiterated that the decision would be in line with
Indonesia's ratification of the Framework Convention on Tobacco
Control (FCTC), an international treaty requiring signatory
countries to limit cigarette advertisements and regularly
increase their prices and excise duties.
"Besides increasing state excise revenue, the policy is
expected to discourage smoking in the country, particularly in
preventing new smokers from the younger generation," he said.
Some 70 percent of the country's 220 million population are
addicted to smoking, which is responsible for more than 50,000
deaths here each year.
A study by the Ministry of Health suggests that a smoker can
spend more than Rp 1 million (US$105) per year on cigarettes if
the market price is Rp 3,000 per pack. The study also says that
cigarette-related ailments cause the state losses of Rp 20
trillion per annum.
In its proposed revision of the 2005 state budget, the
government increased its excise revenue target to Rp 31.4
trillion this year -- or 1.2 percent of the gross domestic
product (GDP) -- from the previous target of Rp 28.9 trillion.
The raise is among the government's attempts to balance likely
ballooning fuel subsidies that could result in the widening of
the budget deficit.
A cigarette retail price raise would enable the government to
generate more money as the excise duty it charges cigarette
manufacturers is based on the final retail price.
The country's tobacco industry suffered a severe blow in 2002,
when the government hiked cigarette excise duties by 20 percent,
causing production to drop from 220 billion cigarettes to 190
billion.
The Association of Indonesian Cigarette Producers (Gappri)
recently warned that a similar scenario could unfold if this
year's planned price increase reached 20 percent, therefore
suggesting the raise only be by a maximum of 10 percent.
The finance ministry's Director General of Customs and Excise
Eddy Abdurrachman said the government had carefully decided on
the price hike, taking into account its impact on the country's
cigarette production as well as employment in the tobacco
industry.
Eddy said that the 15 percent price increase would only
downsize production to 214 billion cigarettes, from a previously
estimated 219 billion.
"This is of course a drop from the estimated figure, but still
a rise from last year's 203 billion," he said. "The price raise
itself is expected to increase this year's excise revenue by 9.9
percent to Rp 32 trillion, and next year to Rp 35 trillion."