Proposal for New Tobacco Excise Layer Urged to be Studied Carefully

The proposal to add a new layer or category within the tobacco excise (CHT) structure to accommodate illegal cigarettes has drawn significant scrutiny, as it is deemed to have the potential to trigger moral hazard and disrupt the policy stability currently being established by the government. The suggestion to introduce a new tariff tier is being criticised for potentially complicating the tariff system and causing market distortions, emerging amidst government efforts to maintain economic stability and ensure certainty for business actors.

Nurhadi, a member of Commission IX of the Indonesian House of Representatives (DPR RI), warned the government to be cautious in formulating this policy to avoid creating false perceptions among the public and industry players. “Regarding the discourse on adding a new excise layer for cigarettes that have been circulating illegally, in principle, I believe the government must be very careful so that this policy is not interpreted as a form of legalisation for illegal cigarettes,” said Nurhadi.

He noted that if the objective of the policy is to bring illegal products into the state’s taxation and supervision system, implementation must be strictly enforced without providing tolerance for existing violations. “We must ensure that moral hazard does not arise, where illegal industry players simply wait for a new policy to automatically enter the official market,” he added.

This scrutiny follows statements from Finance Minister Purbaya Yudhi Sadewa, who confirmed that tobacco excise rates will not undergo changes until 2027. The government has chosen to maintain existing rates to preserve economic stability while strengthening supervision over the circulation of illegal cigarettes. “I will keep it constant, neither rising nor falling. I want economic stability first,” Purbaya stated in Jakarta on Wednesday.

Amid the ongoing pressures faced by the tobacco industry, changes to the tariff structure are seen as potentially creating uncertainty for businesses. Such conditions are feared to affect investment planning, production, and labour absorption. Consequently, efforts to eradicate illegal cigarettes through strengthened supervision and law enforcement are considered more aligned with the government’s goals of maintaining economic stability and fostering a healthy business climate. Conversely, adding a new category to the excise structure is feared to open doors for market distortion and moral hazard, which could hinder efforts to create a more orderly, competitive, and sustainable industry.