Govt looks to boost tax revenue with higher cigarette prices

Govt looks to boost tax revenue with higher cigarette prices

JAKARTA (JP): The cash-strapped government plans to once again
raise the minimum retail cigarette price in a bid to gain higher
excise tax revenues this year, Director General for Customs and
Excise Permana Agung said on Tuesday.

Permana said that he would meet with domestic cigarette
associations to discuss the new plan soon.

"We are considering increasing the minimum retail prices
again, but we have not yet decided by how much and when they
would be increased," he said following a meeting with senior
economic ministers regarding the state budget.

Permana said that the excise tax revenue target had been
increased by Rp 500 billion (US$42.37 million) to a total of Rp
17.6 trillion this year in a bid to help maintain the 2001 budget
deficit at 3.7 percent of gross domestic product (GDP).

He admitted that another increase in the minimum retail price
of cigarettes would have a serious impact on producers, with the
last increase already reducing output.

The government early last month raised the minimum retail
cigarette prices by between Rp 15 and Rp 30 per stick.

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

Cigarette companies usually rank among the country's largest
corporate taxpayers.

The current state budget deficit could widen to a dangerous
six percent of GDP due to a sharp weakening of the rupiah and
rising domestic interest rates.

In a bid to maintain the deficit at the initial projection of
3.7 percent of GDP the government is considering several measures
which focus on raising domestic revenue and cutting down
spending.

Under the plan the government would increase tax and excise
revenue targets by around Rp 3 trillion, to a total of more than
Rp 172 trillion, particularly focusing on income tax and value
added tax.

Director General of Taxation Hadi Purnomo said on Tuesday that
his office would intensify tax collection and broaden the
country's tax base to meet the new revenue target.

He expected that the relatively high oil price at present
would make a significant contribution to meeting the new target.

Bonds

Meanwhile, Director General of Fiscal Decentralization Machfud
Sidik confirmed on Tuesday that the government planned to issue
around Rp 2 trillion in bonds to help maintain the budget deficit
at a safe level.

Machfud said that the government would sell the bonds to
wealthier provinces and districts. He declined to provide details
on the structure of the bond issue.

The bond issue is part of the overall government plan to raise
around Rp 5.2 trillion from the country's richer regions,
including the possibility of selling government shares in state-
owned enterprises (SOEs) and assets under the Indonesian Bank
Restructuring Agency (IBRA), a unit of the finance ministry.

Machfud said that, according to the government's initial
calculations, wealthier provinces and districts would enjoy
between Rp 20 trillion and Rp 30 trillion surpluses in their
budgets this year.

He said that under the plan, the richer regions would be
expected to exchange part of their general grant allocation (DAU)
funds with the government bonds, shares in SOEs or IBRA assets.

The DAU funds are distributed by the central government to
regional administrations throughout the country to help finance
their increased administrative responsibilities resulting from
the new regional autonomy law launched earlier this year.

But Machfud admitted earlier on Monday that the central
government would face a tough challenge persuading the richer
regions to agree to the new plan.

Minister of Finance Prijadi Praptosuhardjo said on Tuesday
that he would meet with the House of Representatives this week to
start debating the proposed revision of the current 2001 state
budget, which includes the various measures to limit the budget
deficit.

Prijadi expected the debate to be completed by the end of this
month.

The International Monetary Fund (IMF) has insisted that it
would only make a new agreement with the government after the
legislature approves the budget revision.

A new agreement with the IMF would pave the way for
disbursement of the fund's third US$400 million loan tranche to
the country. (rei)