Minimum retail cigarette prices to be raised by Rp 15 to Rp 30

JAKARTA (JP): Finance Minister Prijadi Praptosuhardjo said on Wednesday that minimum retail cigarette prices that are used as the basis for calculating excise tax would be increased by between Rp 15 and Rp 30 per cigarette starting on April 1.

"I will sign the decree to that effect this afternoon," he told reporters following a meeting with senior economic ministers.

He said that the increase was meant to help meet the target for government excise tax receipts and protect small-scale cigarette makers.

He added that the increase would be applied to both machine- rolled and hand-rolled cigarettes but he declined to elaborate.

The government uses minimum retail prices as the basis for calculating the excise tax owed by cigarette makers. But companies are allowed to set their retail prices at a higher level than the government's minimum retail price.

Cigarette companies usually rank among the country's largest corporate taxpayers.

The government has targeted the collection of around Rp 17 trillion in excise taxes during fiscal 2001. This sum is part of the Rp 189 trillion in total tax receipts targeted for this year under the state budget.

The plan to raise the minimum retail prices of cigarettes has been the focus of debate among cigarette companies, who are also facing rising prices for cloves which are used in the production of local clove cigarettes.

Analysts, however, said the move to raise the minimum retail prices, and consequently the excise tax, was expected, and would therefore not seriously affect the net profit of large cigarette makers such as the publicly-listed PT Gudang Garam and PT HM Sampoerna.

The share price of Sampoerna fell by 1.35 percent or Rp 150 to Rp 10,950 on Wednesday as the Jakarta Stock Exchange composite index declined by 0.6 percent to 369.303. Investors were generally cautious ahead of the appearance of President Abdurrahman Wahid before the House of Representatives on Wednesday (today) to respond to the Feb. 1 House censure of his alleged role in two financial scandals.

But the share price of Gudang Garam rose by 2.99 percent or Rp 350 to close at Rp 12,050.

The increase in the minimum retail prices, however, may create inflationary pressure as cigarettes are one of the ingredients in the basket of goods and services used to measure the consumer price index.

The central bank is under pressure to meet its 4-6 percent inflation target for this year.

Already, this relatively modest inflation target is being threatened by the government's plans to raise fuel prices in April in a bid to reduce fuel subsidies. (rei)