Tobacco Industry as a Real Example of Downstreaming, Balanced Policy Needed
The Policy and Program Director of the Prasasti Center for Policy Studies, Piter Abdullah, believes the government needs to implement a balanced approach when formulating policies for the tobacco industry, particularly in addressing illegal cigarettes. This statement follows his critique of government plans to encourage illegal cigarette producers to enter the legal system, an initiative intended to reduce the losses incurred by the state.
However, Piter warned that providing a ‘red carpet’ to illegal producers must be reconsidered to avoid creating policy imbalances for businesses that have consistently complied with tax and excise obligations. “The goal should be to maintain fairness within the industry—not just between legal and illegal cigarettes, but ensuring that legal producers, who have been law-abiding, feel that justice is served,” he told CNBC Indonesia.
He argued that the discourse regarding adding new excise layers to accommodate illegal producers should not be the government’s primary focus; instead, law enforcement against illegal actors should be the priority. “The government should focus less on excise layering and more on legal action against those producing illegal cigarettes,” he stated.
Furthermore, Piter described the tobacco sector as a genuine example of downstreaming (hilirisasi), spanning from production to distribution, involving millions of workers, including small business owners and farmers. “The tobacco industry is highly strategic to our economy. When we speak of downstreaming, this is real downstreaming. The majority of this industry is domestic—the tobacco, the cloves, the workforce, and even the technology are largely local,” he said.
In addition to contributing to state revenue through excise, the tobacco industry plays a massive role in employment absorption. Piter warned that neglecting the industry could lead to significant negative consequences. “If the industry collapses, state revenue will decline, and I am deeply concerned about the 6 million people employed there,” he added.
The industry currently faces significant pressure, with production trends showing a decline, particularly following the COVID-19 pandemic. The sector was hit from two sides: demand eroded by declining purchasing power due to widespread layoffs, while the government continued to raise cigarette excise taxes, reaching 23% in 2021. The impact of the pandemic remains felt today.
According to data from the Directorate General of Customs and Excise, national cigarette production in 2025 reached 307.8 billion sticks, a decrease of 27 billion sticks since 2021. Piter also expressed concern that the market share of illegal cigarettes being legalised could expand beyond the current 16.5% to as much as 50%, as lower prices attract consumers and put pressure on major producers in Categories I and II.