Govt raises retail price and excise for cigarette

The Jakarta Post, Jakarta

Despite strong protests from many cigarette companies, the government has decided to go ahead with its plan to raise retail prices and excise rates for cigarettes.

The Ministry of Finance signed on Thursday a decree to raise the retail prices and excise rates starting next month.

"The increase will take effect in November and excise revenue from the new pricing scheme will be included in the 2003 state budget," director general of customs and excise Eddy Abdurrahman was quoted by Antara as saying.

In the draft 2003 state budget, the government plans to rake in some Rp 27.6 trillion (around US$3.4 billion) in revenue from excise, of which Rp 25.9 trillion, or around 94 percent, is expected to come from cigarette sales.

The figure is an increase from this year's total excise target of Rp 22.3 trillion.

Under the decree, the retail price for machine-rolled clove cigarettes made by Class I producers increases to Rp 75 per (0.8 US cents) per cigarette, while prices for similar products made by Class II producers is raised to Rp 60 per cigarette and those made by Class III producers to Rp 50 per cigarette.

The same price increases will be applied to machine-rolled non-clove cigarettes.

The Class I producers refer to those with a production capacity above 2 billion cigarettes, Class II between 500,000 to 2 billion and Class III below 500 million cigarettes.

Prices for hand-rolled clove cigarettes made by Class I producers increases to Rp 60 per cigarette, while the new price for those made by Class II producers is Rp 50 per cigarette, and the price for those made by the Class III producers is Rp 40 per cigarette.

The price for hand-rolled clove cigarettes made by home industries was set at Rp 25 per cigarette.

As for the excise, the rate increase is only imposed on Class I hand-rolled cigarettes, from a previous 20 percent to 22 percent.

Excise for Class II cigarettes remains unchanged at 16 percent and the Class III cigarettes at 8 percent.

In August, many cigarette companies, backed by the Ministry of Industry and Trade, appealed to the Ministry of Finance not to raise the prices and excise on cigarettes in 2003, saying it would hit demand and their revenue. This, in turn, could lead to the bankruptcy for many cigarette companies.