Proposal to Legalise Illegal Cigarettes Could Trigger Mass Layoffs

JAKARTA, KOMPAS.com - The discourse surrounding Finance Minister Purbaya Yudhi Sadewa’s plan to legalise illegal cigarettes as a means to increase state revenue while regulating the circulation of untaxed products is viewed as potentially deepening pressures on the Excise Tobacco Products Industry (CHT). It could even trigger mass layoffs, particularly in labour-intensive sectors. Daily Chairman of the Kudus Cigarette Entrepreneurs Association, Agus Sarjono, highlighted the technical impacts of adding a new excise layer on market structure, especially for the Hand-Rolled Clove Cigarette (SKT) segment, which absorbs significant labour. According to Agus, illegal cigarettes act as a parasite in the industry because they provide no contribution to employment or state revenue. Agus assessed that adding a new excise layer could create new market distortions. “The policy must not become a boomerang. Illegal cigarette players are already intent on not paying excise. If legalised with a special layer, it could be a policy blunder,” he stated. He added that workers hope for fair treatment of the industry, which has long complied with regulations. “Illegal cigarettes provide no contribution to the state and offer no certainty of protection for their workers. The more rampant illegal cigarettes, the fewer job opportunities in the legal cigarette sector,” said Hendry. Meanwhile, a price survey conducted by the Center of Human and Economic Development (CHED) at Ahmad Dahlan Institute of Technology and Business shows that the circulation of illegal cigarettes has increased by 13.9 percent. This condition is seen as potentially widening state revenue leaks while pressuring the competitiveness of the legal industry that has adhered to regulations. With declining production trends, rising illegal cigarettes, and numerous factories closing over the past decade, industry players believe fiscal policies need to be designed carefully. Balancing state revenue, law enforcement, and labour protection is considered key to avoiding accelerating industry contraction and minimising social impacts on workers.