The Paradox of Indonesia's Tobacco Industry: A Major Economic Driver Facing Increasing Challenges
Jakarta, CNBC Indonesia - The processing industry continues to demonstrate its strength as a major driver of Indonesia’s economic growth in early 2026. However, behind the increasingly solid manufacturing performance, there is a sharp contrast where the machinery and equipment industry is booming while the tobacco processing industry is still struggling.
The Central Statistics Agency (BPS) recorded that the processing industry grew 5.04% year-on-year in the first quarter of 2026. This means that Indonesia’s manufacturing sector has grown above the 5% level for four consecutive quarters, indicating that the foundation of the national industry is becoming increasingly solid.
Indonesia’s Industry Moving Unevenly: Machinery Soars, Food and Beverages Recover, Cigarettes Still Lagging
Although manufacturing is starting to recover, BPS data also shows a mixed picture of Indonesia’s industry. Sectors such as machinery, food & beverages, chemicals, and furniture are starting to gain momentum, indicating that investment and production activities are picking up again. However, the tobacco industry is experiencing contraction and remains trapped in ongoing pressures.
This condition shows that although the foundation of the national manufacturing sector is becoming stronger, the speed of recovery between sub-sectors varies greatly, even in opposite directions.
Referring to BPS data, the sub-sector with the most impressive growth is the machinery and equipment industry, which soared 21.93% year-on-year in the first quarter of 2026. This sharp increase is a strong indication that businesses are starting to increase production capacity and add investment in productive tools.
The food and beverage industry, as one of the largest sub-sectors in the processing industry, contributed 7.31% to gross domestic product (GDP) in the first quarter of 2026. Its growth is also continuing to strengthen. The food and beverage industry grew 7.04% year-on-year, higher than the 6.81% year-on-year in the fourth quarter of 2025 and the 6.04% year-on-year in the first quarter of 2025.
Positive performance also came from the furniture industry, which grew 4.32% year-on-year in the first quarter of 2026, benefiting from the United States’ reciprocal tariff policy.
The Cigarette Industry is Still Under Pressure
Amid the strengthening of various manufacturing sub-sectors, the tobacco processing industry still faces significant challenges.
In the first quarter of 2026, this sub-sector contracted by 4.05% year-on-year, continuing the 4.97% year-on-year decline in the previous quarter. This condition shows that the recovery of the cigarette industry has not been firmly established.
In fact, the tobacco industry has a very broad economic chain. This sector is closely related to tobacco farmers, factory workers, distribution, retail trade, and state revenue through excise duties.
Therefore, the weakening of the tobacco industry not only reflects pressure at the factory level but can also have an impact on millions of economic actors along the supply chain.
The Tobacco Industry, the Backbone of the Economy
Indonesia’s tobacco industry turnover exceeds hundreds of trillions of rupiah in the form of tax contributions, local economic contributions, and job creation.
Data from the Central Statistics Agency (BPS) shows that the tobacco processing industry absorbs 1.58 million workers, ranging from micro, small, medium, and large-scale enterprises.
If you calculate the supply chain from upstream to downstream, starting from tobacco plant businesses, production in factories to distribution, the Ministry of Industry notes that the tobacco industry currently supports around 6 million workers, including tobacco and clove farmers, factory workers, and small business actors in the distribution and trade sectors. The largest labor absorption occurs mainly in the Hand-Rolled Cigarette (SKT) segment.
This number is much larger than other sectors such as mining and extraction, which absorb 1.73 million workers, or information and communication, which supports 1.03 million people.
The tobacco industry has also been a source of state revenue for decades. Data from the Ministry of Finance shows that excise receipts in 2025 reached IDR 221.7 trillion, of which 95-96% came from tobacco excise duties (CHT). In the last 10 years, excise revenues have contributed around 8-11% to state revenue.
The contribution of excise duties to the state is even greater than Non-Tax State Revenue (PNBP) from the oil and gas sector or non-oil and gas sectors. For comparison, excise revenue in 2025 reached IDR 221.7 trillion, while PNBP from oil and gas reached IDR 105 trillion, and from non-oil and gas, including minerals to coal, touched IDR 140.3 trillion.
If you calculate tax contributions such as income tax (PPh) or value-added tax (PPN), the contribution of the tobacco industry is even greater. This can be seen in the Financial Statements of several of Indonesia’s largest publicly listed cigarette companies. The financial statements of several public tobacco companies show that 72-75% of their revenue is returned to the state in the form of excise duties and taxes, including VAT, regional taxes, and corporate income tax.
The proportion of contributions to the state compared to total revenue earned by cigarette companies is very large compared to other industries. For comparison, mining giant PT Alamtri Resources Indonesia contributed US$248 million to state revenue in 2025 in the form of PPh and royalties. This value is only 13% of their total revenue, which reached US$1.87 billion.
Indonesia’s leading herbal medicine company, PT Industri Jamu Dan Farmasi Sido Muncul, contributed IDR 515.68 billion to the state in the form of VAT and PPh. This amount is only 12.6% of their total revenue.