Govt considers imposing new cigarette excise

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)