Legislator warns new CHT layer could trigger market distortion

Jakarta (ANTARA) - Nurhadi, a member of Commission IX of the Indonesian House of Representatives (DPR RI), has warned that the proposal to add a new layer or category to the tobacco excise (CHT) structure to accommodate illegal cigarettes could potentially trigger market distortion.

Furthermore, the policy is deemed to have the potential to complicate the tariff structure and create opportunities for moral hazard, contradicting the government’s current policy direction which emphasises economic certainty and stability.

“Regarding the discourse on adding an excise layer for cigarettes that have been circulating illegally, in principle, I believe the government must be very careful so that such a policy is not interpreted as a form of legalisation for illegal cigarettes,” Nurhadi stated in his remarks in Jakarta on Wednesday.

In this context, he continued, the urgency of adding a new excise layer is questionable, as the government is currently striving to create certainty for business actors, yet this discourse introduces a new option that could potentially disrupt the market structure.

According to him, if the government’s goal is to bring illegal products into the taxation system and state supervision, the mechanism implemented must be strictly enforced and must not allow for the neglect of existing violations.

“We must not allow moral hazard to arise, where it appears as though illegal industry players only need to wait for a new policy to automatically enter the official market,” he said.

With the current eight existing excise tariff layers, many cigarettes are already being sold below the price of Rp10,000. Adding another layer could lead to an even greater surge in cheap, untaxed, or illegal cigarettes.

Nurhadi noted that amidst the ongoing pressures faced by the tobacco industry sector, changes to the tariff structure are also feared to send signals that contradict the spirit of stability being built by the government.

At a time when business actors require certainty to plan investments, production, and labour absorption, the emergence of a new category could potentially create uncertainty regarding the future direction of excise policy.

Focusing on the eradication of illegal cigarettes, strengthening supervision, and law enforcement is considered more aligned with the goals of maintaining economic stability and creating a healthy business climate.

Conversely, adding a new layer risks creating market distortion and moral hazard, which could ultimately hinder the government’s efforts to build a more orderly, competitive, and sustainable industry.

Previously, Finance Minister Purbaya Yudhi Sadewa ensured that tobacco excise (CHT) rates would not undergo increases until 2027.

The government has chosen to maintain the rates to create stability, while simultaneously strengthening supervision and eradicating the circulation of illegal cigarettes that has been disrupting the business climate and eroding state revenue.

“I will keep it constant, neither increasing nor decreasing. I want economic stability first,” Purbaya said in Jakarta on Wednesday (20/5).