Govt likely to revise downward 2003 excise revenue target

Rendi A. Witular, The Jakarta Post, Jakarta

The government is likely to revise its 2003 excise revenue target due to the declining demand for cigarettes on the market and troubles in several regencies that ban the sale of alcohol, an official said.

Excise director at the Directorate General of Customs and Excise Erlangga Mantik told The Jakarta Post on Friday that the government's excise revenue during the first semester of this year might reach only around Rp 11 trillion (US$1.3 billion), or 41 percent from this year's target.

"With the current unfavorable market, I think we have to recalculate our excise revenue target for this year," said Erlangga.

This year's excise revenue is estimated at Rp 27.9 trillion (about US$3.3 billion), which accounts for more than 10 percent of the projected 2003 tax and excise revenue of Rp 241.7 trillion.

The cigarette industry, comprising clove and non-clove cigarette manufacturers, usually contributes 98 percent of the government's excise revenue. The remainder is contributed by the alcohol industry.

Erlangga said the country's cigarette companies were currently having difficulties in maintaining their production over the dwindling demand on the market due to the people's declining purchasing power.

Thus, he added, his office would propose to the House of Representatives Commission IX for state budget and financial affairs around September to review the excise target.

The latest report from the Central Statistics Agency (BPS) shows that the first quarter's household consumption declined by 1.23 percent from the previous quarter. Analysts said the decline was caused by an increase in unemployment.

Since 1999, the government has hiked the excise-related clove cigarette prices five times. For example, the price of machine- made clove cigarettes has been raised from a range of Rp 110 to Rp 225 per cigarette in 1999 to a range of Rp 320 to Rp 400 at present.

The Association of Clove-Blended Cigarette Manufacturers (Gappri) has urged the government to cut the excise tariffs in order to help the ailing industry recover.

According to the association, the number of clove cigarettes produced by Gappri members in 2002 declined to about 170 billion sticks from about 187 billion in 2001.

Cigarette companies such as PT H.M. Sampoerna and Indonesia's largest cigarette producer PT Gudang Garam are also experiencing woes.

Sampoerna, for example, recorded a decline in its first quarter sales to Rp 3.4 trillion from Rp 3.7 trillion in the same period last year.

Although Gudang Garam booked a first quarter increase in its sales to Rp 5.8 trillion from Rp 4.6 trillion in the same period last year, the company's net profit tumbled to Rp 785 billion from Rp 835 billion due to the increase in sales cost.

Gudang Garam contributes around 30 percent to the government's excise revenue.

Not just from cigarettes, according to Erlangga, the government's excise revenue was also affected by the persisting low sales of alcoholic drinks due to several regencies' policies in banning the products for religious reasons.

Erlangga said sales of alcohol was originally expected to grow this year so that the excise revenue could increase.

The agency has asked the Directorate General of Fiscal Balance for the Central Government and Regional Administrations to help annul the policies.