VP asks cigarette firms for sacrifice

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.