New excise tax affects regular cigarette prices
JAKARTA (JP): The newly applied cigarette excise tax scheme puts makers of regular cigarettes at a disadvantage as it eliminates their control over retail prices, an analyst said here on Monday.
David Jap of Trimegah Securindolestari said the new rule would force makers of regular cigarettes to raise their retail prices, likely making their products less competitive.
"Under the new scheme, they must follow government-set retail prices. In other words, they must increase their retail prices. This will lead them to head-on competition with clove cigarette makers," he told The Jakarta Post
He said makers of regular cigarette previously sold their products at much lower prices than clove cigarette makers.
The clove cigarette industry has experienced three price hikes since November 1997 as regulated by the government, Jap said.
The Indonesian government adopted, beginning on April 1, a new cigarette excise tax scheme which unifies the tax ruling on machine-rolled clove cigarettes and machine-rolled regular cigarettes.
Under the scheme, excise tax on machine-rolled clove and regular cigarettes produced by big companies and with a minimum retail price of Rp 225 (2.5 U.S. cents) per cigarette is 36 percent.
The excise tax on machine-rolled clove and regular cigarettes produced by medium-size companies, with a minimum price of Rp 180 per cigarette, is 30 percent. A 28 percent excise tax is imposed on similar cigarettes if their per cigarette prices are between Rp 150 and Rp 175.
The ministry imposes a 22 percent tax on machine-rolled clove and regular cigarettes made by small companies, with prices between Rp 130 and Rp 145 per cigarette. A 20 percent tax is, however, tagged for similar cigarettes that sell for between Rp 110 and Rp 125.
For hand-rolled cigarettes, the government imposes a 16 percent excise tax for those produced by big companies and a minimum per cigarette price of Rp 150.
For hand-rolled cigarettes made by medium-sized companies with prices ranging between Rp 100 and Rp 145, the tax is 8 percent, while tax on hand-rolled cigarettes produced by small firms, with prices ranging between Rp 10 and Rp 95, is 4 percent.
Adi Harnadi, secretary-general of the Association of Indonesian Cigarette Producers, said the impact of the new regulation should not be too big on makers of regular cigarettes because they would not have to change their prices at once.
"There is a transition period of between two and three years for them to adjust their retail prices. That will help them much in adapting to the new scheme," he told the Post.
Large-scale producers of regular cigarettes have been given a two-year transition period in which they will be able to adjust their prices by 60 percent during the first year, he said.
While medium and small-scale manufacturers have been given a three-year transition that will enable them to adjust their prices by 45 percent in the first year, he added.
"It is the first time the government has applied the same regulation regarding excise tax and retail price to both makers of clove and regular cigarettes," Adi said.
Previously only clove cigarette makers had to follow government-set prices, he said.
Adi said the new regulation had narrowed the price gap between clove and regular cigarettes.
"Previously, a medium-scale regular cigarette maker could sell one cigarette for only Rp 50, while a medium-scale clove cigarette maker had to sell his for Rp 175 each," he said.
"But that's not regular cigarette makers' fault because they were only following the regulation," he said.
Adi said the new scheme also simplified the categorization of cigarette manufactures from four groups comprising large, medium, medium-to-lower and small-scale to three groups by eliminating the medium-to-lower scale. (cst)