Government raises excise tax on cigarettes

Government raises excise tax on cigarettes

JAKARTA (JP): The government raised minimum cigarette retail
prices by between Rp 12.5 and Rp 25 per cigarette, effective from
July 1, in a bid to obtain larger excise tax revenue this year,
Director General for Customs and Excise Tax Permana Agung said on
Tuesday.

Permana said that the higher excise revenue was needed to help
curb the 2001 state budget deficit to a safer level of around 3.7
percent of gross domestic product.

"The finance minister has signed the decree, and it was
effective on July 1," he told reporters, after a meeting with
House of Representatives commission IX on the state budget and
finance.

Permana said that the minimum retail price for regular
cigarettes was raised by Rp 12.5 per stick, by Rp 20 for machine-
rolled clove cigarettes, and by Rp 25 for hand-rolled clove
cigarettes.

"It will help us raise an additional Rp 500 billion (US$43.8
million) toward the (2001) excise tax revenue target of Rp 17.6
trillion," he said.

Since 2000, the government has raised minimum cigarette retail
prices three times. Earlier in April, retail prices were raised
by between 15 percent and 20 percent, and in November last year,
by 20 percent. The higher retail prices the larger are excise tax
receipts for the government.

Permana played down concern that the latest increase in the
government-set minimum retail price would reduce cigarette demand
in the country.

"We've carefully thought about it," he said.

Indonesia produced some 232 billion cigarettes last year,
comprising 121.6 billion machine-rolled clove cigarettes, 86
billion hand-rolled clove cigarettes, and 25 billion white
cigarettes.

Cigarette makers have usually been ranked as the country's
largest corporate income tax payers.

The government uses minimum retail prices as the basis for
calculating the excise tax owed by cigarette makers. But
companies are allowed to set their retail prices at a higher
level than the government's minimum retail prices.

Corporate secretary of cigarette maker PT Philip Morris
Indonesia Geroad Yusuf told the Jakarta Post that the price of
Philip Morris brands would increase by a minimum Rp 12.5 rupiah
per cigarette as it produced only white cigarettes under the
brand names Marlboro, Long Beach and L&M.

He said, for example, Marlboro cigarettes would be sold at a
minimum price of Rp 5,250 per pack under the new scheme, from the
current price of Rp 5,000.

"However, we will only be able to raise our retail prices two
or three months after the government's minimum retail prices take
effect, while we wait for the existing banderole (excise stamp)
to go out of circulation," he said.

Geroad said that the latest increase in the minimum retail
prices had caused the company to be less pessimistic about
meeting this year's sales targets.

"It's difficult to make a projection now, because we have also
faced many obstacles, including a depreciation of the rupiah and
a worsening economic situation," he said.

Separately, Jonathan Zax, corporate development director of
publicly-listed PT HM Sampoerna, one of the country's largest
cigarette makers, said that the company would also raise the
price of its products.

Sampoerna produces all types of cigarettes, including the A
Mild, Dupont white, and Dji Sam Soe hand-rolled clove cigarette.

Zax said that under the government's new minimum retail
prices, Sampoerna's cigarettes would be sold within a range of
between Rp 4,900 and Rp 5,250 per pack, compared with the
previous prices of between Rp 4,700 and Rp 5,000.

The share price of Sampoerna on the Jakarta Stock Exchange was
down Rp 300, or 1.91 percent, to close at Rp 15,400, while Gudang
Garam dropped Rp 200, or 1.54 percent, to Rp 12,800. Gudang
Garam is also one of the country's largest cigarette makers

Traders said that cigarette makers and investors had been
expecting a price hike since the government announced the plan
earlier in June. (05)