Labour-Intensive Sector Regulations Require Review to Safeguard Economic Performance

The Ministry of Economic Coordination has called for caution in formulating regulations concerning the Tobacco Products Industry (IHT), particularly regarding nicotine and tar content restrictions. The sector has proven to make substantial contributions to national economic stability, state revenue, and employment across various regions. Alongside maximum nicotine and tar limits, the labour-intensive tobacco sector is also facing simultaneous pressures from other regulations such as plain packaging rules and bans on additives, threatening its sustainability.

‘As these policies are important for public health, their implementation may need to be cautious, data-driven, and possibly phased,’ said Eripson M.H. Sinaga, Assistant Deputy for Agro, Chemical, Pharmaceutical, and Textile Industry Development at the Ministry of Economic Coordination, in an official statement on Friday (29 May).

Eripson emphasised the importance of holistic policymaking that does not focus solely on one aspect. Future regulations should adopt evidence-based approaches through cross-sector coordination and dialogue involving government, academia, and industry stakeholders.

He stated that IHT policy formulation must balance national economic interests. Indonesia’s first-quarter 2026 economic growth rose to 5.6%, with the manufacturing sector growing by 19.7%, including tobacco products.

According to Ministry of Economic Coordination data, the tobacco sector has a wide supply chain in Indonesia. Currently, around 1,700 active IHT businesses employ over 140,000 people directly. The ecosystem also involves supporting sectors such as plastics, filters, printing, distribution, trade, and informal SMEs.

Despite its significant contribution, IHT faces serious pressures. Production has declined from 338 billion cigarettes in 2017 to 307 billion in recent 2024-2026 data. This has been accompanied by down-trading—consumers shifting to cheaper products—and signs of rising illegal cigarette consumption.

Eripson explained that this has led to a continuous decline in IHT’s contribution to state revenue, from 5.5% in 2019 to 3.38% in 2026. The government has decided not to increase tobacco excise duties in 2026 to maintain industry stability and employment.

He further noted the extensive connections of IHT from plantation to exports, creating multiplier effects in banking, advertising, and regional economic sustainability, particularly in production hubs.

‘Policy analysis for IHT requires a comprehensive study, not just health aspects, but also negative impacts on jobs, income, investment, regional revenue, and human resources, especially in central regions,’ Eripson said.

Given IHT’s substantial contribution, Eripson reminded the need for shared understanding of Indonesia’s unique tobacco characteristics, which naturally have higher nicotine levels due to soil, climate, and environmental factors. Additionally, the domestic market is dominated by kretek cigarettes, which contain cloves at 93%.

Strict nicotine and tar restrictions without considering these characteristics could disrupt domestic raw material growth, such as tobacco and cloves. Proposed limits of 1mg nicotine and 10mg tar are feared to increase imports of lower-nicotine foreign tobacco varieties.

‘A very careful analysis is needed to balance public health goals with job security and national and regional economic stability,’ he stressed.

The government manages the tobacco industry through four policy pillars: consumption control as the main pillar, sustainable industrial and employment development, state revenue protection, and illegal cigarette monitoring. He considered tackling illegal cigarettes crucial.

‘Monitoring illegal cigarette products is a key focus we discuss with other stakeholders, as it optimises the other three pillars,’ he added.

APINDO also highlighted potential impacts on intellectual property rights, particularly concerning legally protected trademark values.

Policy proposals to legalise illegal cigarette producers through additional excise tiers have drawn criticism from academics and legal observers.

The Tobacco Products Industry (IHT) welcomed Finance Minister Purbaya Yudhi Sadewa’s indication of no tax increases this year.

Stakeholders in the tobacco ecosystem have requested protection from proposed nicotine and tar content restrictions.

Standardising excessively low nicotine and tar levels risks eliminating kretek cigarettes, a distinctive Indonesian product.