Govt to raise minimum cigarette prices

Adianto P. Simamora, The Jakarta Post, Jakarta

The government has decided to raise the minimum retail price for cigarettes starting Dec.1 to increase tax revenue intended to cover the state budget deficit.

Minister of Finance Boediono said he was optimistic the expected increase in tax revenue from the cigarette industry would be enough to cover the budget deficit this year even if the government could not meet its revenue target from privatization divestment programs.

He, however, did not provide figures detailing the rise in government revenue from the cigarette retail price hike. The government earlier targeted a cigarette excise tax of around Rp 17 trillion this year and about Rp 22.35 trillion in 2002.

The government projected a budget deficit of Rp 54.3 trillion (US$5.17 billion) or 3.7 percent of gross domestic product this year.

Under the plans, the minimum retail price for cigarettes would be increased by between Rp 45 and Rp 70 per stick.

The minimum price for hand-rolled cigarettes will be raised by Rp 60 to Rp 315 per stick, prices for machine-rolled cigarettes by Rp 75 to Rp 400 per stick, while prices for non-clove or white cigarettes by Rp 252.5 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.

There have been worries that the government would not be able to plug the shortfall in the current budget given the slow progress in the implementation of the privatization and divestment programs.

To cover the Rp 54.7 trillion, the government expected Rp 27 trillion from the sales of assets controlled by the Indonesian Bank Restructuring Agency (IBRA). However, IBRA said it expected to collect Rp 24 trillion by the end of this month.

The government has also targeted Rp 6.5 trillion in revenue from the privatization of state-owned companies. But so far, the program has yielded nothing.

One of the major state assets the government has planned to sell this year is Semen Gresik, but it has so far failed to realize this plan due to strong opposition from people in the provinces of West Sumatra and South Sulawesi, where the company has its operations.