Govt turns to smokers to boost revenue

Govt turns to smokers to boost revenue

Urip Hudiono, The Jakarta Post/Jakarta

Attempting to strike two birds with one stone, the government
will raise the retail price of cigarettes by up to 20 percent to
increase state revenue from excise as well as discourage smoking
in the country, the finance minister said.

The price increase could mean that the government is turning
to smokers to help balance a likely ballooning of fuel subsidies
that could result in a widening of the budget deficit.

Minister of Finance Jusuf Anwar said on Friday the government
was planning to raise cigarette prices by between 15 percent and
20 percent so it could meet the excise revenue target.

"We will not raise excise tariffs this year, but raise the
retail price of cigarettes instead," he said. "We expect to be
able to do this starting July, and that will help increase excise
revenue."

Under the prevailing excise law, the government sets the
minimum cigarette retail price as a benchmark to charge excise
duty, so raising the base price would boost excise revenue. It
kept cigarette retail prices unchanged last year to boost sales
after an aggressive increase in 2003 saw lower consumption.

As stated in the revision for the 2005 state budget, the
excise revenue target was increased to Rp 31.4 trillion (US$3.3
billion) from a previous target of Rp 28.9 trillion. The ministry
recently reported that excise revenue had as of May reached Rp
10.54 trillion.

Jusuf further expected that the price increase would also
discourage smoking, to which some 70 percent of the country's 220
million population are addicted.

"The price hike will be among our commitments for the
Framework Convention on Tobacco Control (FCTC)," he said,
referring to an international smoking-reducing treaty that came
into effect in February. In several FCTC-compliant countries,
smokers are indeed compelled to dig deeper into their pockets to
satisfy their habit.

Jusuf said, however, that the government would be cautious in
implementing the price hike, to avoid hurting consumption and the
tobacco industry, which accounts for 90 percent of excise
receipts.

"We will carefully study at what level the price hike would
not significantly affect consumers' purchasing power," he said.

"I have also discussed with the Ministry of Industry the
possible effects on production costs and the employment capacity
of the tobacco industry."

Nevertheless, share prices of the country's largest cigarette
maker, PT Gudang Garam, fell 4.6 percent to Rp 13,450 when the
news broke.

Similarly, share prices of rival PT HM Sampoerna also dropped
1.8 percent to Rp 8,200, with the Jakarta Stock Exchange
Composite Index gaining only slightly by 0.7 percent to 1061.50
points.