Tobacco Special Economic Zone Risks Sparking Economic and Health Conflicts

Chairman of the Indonesian Empowered Consumers Forum (FKBI), Tulus Abadi, assesses that the discourse on establishing a tobacco Special Economic Zone (KEK) on Madura Island could pose serious problems at the macroeconomic level and in public health. He states that the idea is fraught with conflicts of interest and risks being counterproductive to national policies. “In a broader context, both at the economic and public health levels, this tobacco KEK will reap many potential problems and conflicts,” Tulus said in an official statement on Sunday, 3 May 2026. The discourse on the Madura tobacco KEK has emerged alongside the region’s position as one of the national tobacco production centres. Additionally, there are claims of fiscal injustice because tobacco-producing areas are deemed not to have received an optimal share from the tobacco excise revenue-sharing funds (DBHCHT). The idea has received support from various quarters, including legislative institutions and industry players. In terms of regulation, Tulus explains that the establishment of KEKs does indeed refer to Government Regulation Number 8 of 2022 on Special Economic Zones and Presidential Decree Number 10 of 2022. However, according to him, these two regulations do not explicitly mandate the creation of a tobacco-based KEK. On the other hand, he assesses that the discourse could potentially clash with Law Number 39 of 2007 on Excise, which affirms the function of excise as an instrument for controlling the consumption of certain goods, including tobacco. Furthermore, this policy is deemed not aligned with Law Number 17 of 2023 on Health and its derivatives, which encourage the control of tobacco products. According to Tulus, the existence of a tobacco KEK risks becoming a legitimisation for boosting cigarette production and consumption, thus contradicting the National Medium-Term Development Plan, which targets a reduction in smoking prevalence. As a result, the state’s financing burden for catastrophic diseases could increase, as reflected in national health financing data. He also warns of the potential domino effect if the tobacco KEK is realised. Similar models could be replicated in other regions, such as Temanggung, Wonosobo, or Bojonegoro, thus complicating supervision, including on the circulation of illegal cigarettes, whose trend is increasing. On the fiscal side, the provision of incentives in the KEK scheme, such as tax holidays, import duty exemptions, and other facilitations, could erode state revenues, particularly from the tobacco excise sector. Additionally, the policy is assessed to open up room for tariff differentiation that could lead to a decline in state income. Tulus adds that this policy also risks creating a negative precedent at the global level. This is because no country applies a tobacco-based KEK, while the international community is instead tightening control through the Framework Convention on Tobacco Control framework. Tulus requests that the government not proceed with the Madura tobacco KEK discourse because it is deemed to cause more conflicts and to be counterproductive, both from regulatory, economic, health, and social perspectives, and could harm the state and damage Indonesia’s reputation at the global level.