Tobacco firms told to restructure

Tobacco firms told to restructure

The Jakarta Post, Jakarta

The government repeated on Tuesday its pledge not to raise
excise rates on cigarettes and alcoholic drinks next year to
allow the industries to recover from a slump.

Director general of customs and excise Eddy Abdurrahman called
on the industries, particularly the tobacco industry, to
restructure their businesses throughout next year and prepare
themselves for an increase the following year.

"We know that cigarette companies have been having
difficulties in the past couple of years, thus we give them a
chance to undergo business restructuring next year in order for
them to cope with a possible rise in excise rates in the
following years," Eddy said.

However, Eddy did not elaborate the kind of restructuring the
industry had to embark on.

Under the state budget, the government has set a Rp 27.7
trillion (US$3.25 billion) excise revenue target for 2004, up
from an estimated Rp 26.3 trillion for this year.

As the excise rate will be frozen next year, the government
can only expect an increase in excise revenue from the rise in
the number of smokers and drinkers.

Initially, the government targeted Rp 27.9 trillion in excise
revenue from cigarettes this year, but it later revised down the
target in view of declining sales.

Cigarette producers blamed the declining sales on the public's
weakening purchasing power and the huge rise in retail prices of
cigarettes, which was caused by the increase in the excise rate.

The government has raised excise rates for cigarettes five
times since 1999. For example, the prices of machine-made clove
cigarettes now cost three times more than in 1999.

Industry players predicted cigarette sales to drop to 186
billion sticks this year, from 204 billion in 2002.

Some 90 percent of the government's excise revenue comes from
cigarette, with the liquor industry contributing the remainder.