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."