VP asks cigarette firms for sacrifice

Rendi A. Witular, The Jakarta Post, Jakarta

The lower profits cigarette-makers were likely to experience when the government raised the retail price on cigarettes should be viewed as a sacrifice to the state, Vice President Jusuf Kalla said on Tuesday.

"The tobacco industry is one of the most profitable sectors in (Indonesian) business. Raising the (retail) rate won't affect tobacco firms much, since they will still be able to make a profit. Remember that cigarette prices here are still the lowest in the world," Kalla said.

By increasing the retail price of cigarettes the government planned to make more money on the excise duty it charged manufacturers, which was calculated on the final retail price.

The amount of the increase has not been finalized but last week the Minister of Finance Jusuf Anwar suggested it would be in the range of 15 to 20 percent. This extra revenue would help plug the state budget deficit that has increased in line with the rising costs of the government's fuel subsidy.

Economists have said the cost of the subsidy my well reach some Rp 90 trillion (US$9.5 billion) this year, more than two times higher than the initial forecast.

Kalla stressed the government would be cautious in implementing the hike so as to avoid any drop-off in the consumption of tobacco products. The industry already accounted for 95 percent of the government's excise receipts, he said.

The current state budget, which does not factor in the increase, targets excise revenue this year at Rp 31.4 trillion, higher than Rp 28.9 trillion aimed for last year.

"I have ordered the Ministry of Finance to go ahead with the plan in increasing the retail cigarette prices. All cigarette companies must comply with the decision," Kalla said.

"I believe that they will not be burdened by the policy."

Meanwhile, PT H.M. Sampoerna, the country's second-largest cigarette maker by sales, said that more than a 10 percent increase in the cigarette prices could hurt producers as it would affect sales.

Sampoerna is 98 percent-owned by U.S. cigarette giant Philip Morris International.

"Less than a 10 percent increase in the price is likely to be OK, but more (than that) could disturb sales," Sampoerna director Angky Camaro said after meeting Kalla earlier in the day.

Angky said the industry had not yet fully recovered from the aggressive excise rate hikes in 2002 and 2003, which had resulted in declines in the volumes of cigarette produced and lower profits across the board.

Last year, local cigarette company profits rose on increased consumption spurred on by higher general economic growth and the absence of any increases in excise duty.

The Indonesian Cigarette Producer Union (Gappri) estimates that some 141 million of the country's 220 million people are smokers.