Govt considers imposing new cigarette excise
JAKARTA (JP): Minister of Industry and Trade Rahardi Ramelan said on Friday the government might introduce a new cigarette excise scheme to replace the controversial tax ruling introduced in April.
Rahardi said that under the new excise tax scheme currently being studied, nicotine and tar content would be taken into account.
"It aims to encourage the local cigarette industry to produce healthier cigarette products. However, it is still under study," he said.
Rahardi also denied rumors that the plan to review the existing excise tax was to satisfy regular (non-clove) cigarette makers who objected to the newly introduced cigarette excise system.
"No, no, it is merely for health reasons. Don't you know that lung cancer is one of the most dreadful diseases?"
Analysts said the new excise tax, if implemented, would kill clove-blended cigarette producers, most of which are small or medium-scale companies, and would benefit only the machine-rolled cigarette makers, most of which are giant international cigarette companies.
They said only big cigarette makers had the technology to control the level of tar and nicotine in their products to meet the standards set by the government.
Clove-blended cigarettes have a higher nicotine content than regular cigarettes, they said.
The Indonesian government adopted, beginning on April 1, a cigarette excise tax scheme which unifies the tax ruling on machine-rolled clove cigarettes and machine-rolled regular cigarettes.
Under the existing scheme, the government sets minimum retail prices for regular cigarettes. Excise rates were raised by between 20 percent and 36 percent.
The limit, previously imposed only on clove-blended cigarettes, would force regular cigarette producers to increase their prices.
For example, under the existing scheme, excise tax on machine- rolled clove and regular cigarettes produced by big companies and with a minimum retail price of Rp 225 (2.5 U.S. cents) per cigarette is 36 percent.
Indonesians smoke 202 billion cigarettes per year, almost 90 percent of which are clove cigarettes.
Clove-blended cigarette makers blamed the planned review of the current cigarette excise scheme on PT British Tobacco Indonesia (BAT).
BAT executives recently met President B.J Habibie and asked him to review the existing excise tax scheme.
BAT president Mark A. Jennings denied the allegation, saying the company never asked the government to base its excise tax mechanism on tar and nicotine content of cigarettes.
"We are not behind the government's plan to impose such an excise scheme. We ourselves are shocked by the plan. We believe that the government is just trying to comply with international calls to control tar and nicotine level in cigarette products," he said.
Jennings said the existing excise tax ruling would harm the profitability of the country's regular cigarette producers and could force them to lay off workers.
"We do not support the government's plan to impose excise tax based on tar and nicotine content.
"However, if the government insists on implementing such a regulation, we, as the one having the technology to meet such standards, will be willing to help local companies so they also can meet the standards," he said.
Listed on the Jakarta Stock Exchange, BAT is one of the country's oldest cigarette producers, commencing operations in 1917. It remains a market leader in the regular cigarette sector with brands including Lucky Strike, State Enterprise, Express 555, Kent, Benson & Hedges, Ardath and Commodore. (gis)