Illegal Cigarettes Proliferate, Industry Requests 3-Year Excise Tax Moratorium

The government has signalled that it will not raise taxes this year to safeguard public purchasing power amid global and domestic economic pressures. Tobacco industry players, who have faced excise tariff increases in recent years, are delighted and view the policy as a much-needed breather for the tobacco sector. “For us, this tobacco ecosystem will receive fresh wind amid the unconducive and uncertain global macroeconomic constellation,” said Benny Wachjudi, Chairman of the Indonesian White Cigarette Manufacturers Association (Gaprindo), in his statement on Wednesday (13/5/2026). Industry players hope the government’s statement applies not only to general taxes but also to tobacco excise policies (CHT) and retail selling prices (HJE). Gaprindo has proposed a moratorium on excise and HJE increases for three years, reasoning that public purchasing power has not fully recovered. “We hope there will be no excise and HJE increases for the next three years. This moratorium would be highly relevant because public purchasing power remains weak and illegal cigarettes are increasingly rampant,” said Benny. Gaprindo notes that tobacco excise increases from 2020-2024 have reached around 65%, while legal cigarette production volumes continue to decline. Gapero data shows legal cigarette production fell from around 322 billion sticks in 2019 to 307.8 billion sticks in 2025. According to Benny, the decline in legal production does not automatically reduce national cigarette consumption. He stated that some consumers have shifted to illegal products sold at much lower prices because they do not bear excise or other tax burdens. “Normatively, no economic activity can compete with another that has 70% lower production costs,” said Benny. Meanwhile, Sulami Bahar, Chairman of the Indonesian Cigarette Companies Association (Gapero), said certainty of no tax increases is a key concern for millions who depend on the tobacco industry for their income. “We welcome the Finance Minister’s statement with relief. This is not just about numbers on paper. For us, certainty of no tax increases is good news that is directly felt on the ground,” said Sulami. The tobacco industry involves a long economic chain from tobacco and clove farmers to rolling workers and small traders. He noted that the sector absorbs around 6 million direct and indirect workers, so fiscal policies are seen to have significant social impacts. “The moratorium is not just a fresh wind for entrepreneurs but a shield for the most vulnerable workers, especially rolling labourers in the hand-rolled clove cigarette segment, which has the thinnest margins,” he said. As is known, the government has postponed cigarette excise increases until May 2026. Currently, the government is designing a new cigarette excise tier.