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.