Why Uniforming the Tobacco Excise Structure Prevents Downtrading
In its latest research, the Center for Indonesia’s Strategic Development Initiatives (CISDI) proposes uniforming the tobacco excise structure to suppress consumption and increase state revenue. The reason is that the increasing number of structures creates a variety of price options, allowing consumers to switch to cheaper cigarettes (downtrading).
To date, there are eight excise structure groups in force in Indonesia for machine-made cigarettes and hand-rolled clove cigarettes (SKT). Muhammad Zulfiqar Firdaus, Health Economics Research Associate at CISDI, stated that more structure space increasingly accommodates the industry in producing various cigarette variants, including cheap ones.
“That’s where the downtrading phenomenon emerges. From a consumption perspective, it certainly has a significant impact; people don’t stop smoking because cheap cigarettes are always available in the market,” Zulfiqar said during the dissemination of CISDI’s research on Thursday, 16 April 2026.
The proposal for uniforming and simplifying tariffs is outlined in CISDI’s latest research titled ‘Reformasi Cukai Rokok di Indonesia: Simulasi Proyeksi Peningkatan Penerimaan Negara dan Kesehatan Masyarakat’ (Tobacco Excise Reform in Indonesia: Simulation of Projections for Increasing State Revenue and Public Health). There are three excise reform scenarios proposed in the research.
The first scenario is a uniform annual tariff increase. This involves raising the excise tariff by 10 percent per year for machine-made cigarettes and 20 percent per year for hand-rolled cigarettes over the next two years.
Second, simplification of the excise structure for machine-made cigarette groups. In this scenario, CISDI proposes simplifying the excise structure by merging machine-made cigarette groups (SPM 1 with SKM 1 and SPM 2 with SKM 2) in the first year. This is followed by an annual excise tariff increase of 10 percent for machine-made cigarettes and 20 percent for hand-rolled cigarettes in the first and second years.
The third scenario is simplification of the excise structure for hand-rolled cigarette groups. This involves simplifying the excise structure by merging hand-rolled cigarette groups (SKT/SPT 1A with SKT/SPT 1B and SKT/SPT 2 with SKT/SPT 3) in the first year, followed by an annual excise tariff increase of 10 percent for machine-made cigarettes and 20 percent for hand-rolled cigarettes in the first and second years.
The results of CISDI’s research show that from these proposals, the third scenario produces the largest cigarette price increase, consumption decrease, and revenue increase. In its research, CISDI presents calculations of the impacts.
From the price perspective, if the first scenario is implemented throughout 2025-2026, the average cigarette price will rise by Rp 100 per stick. If the second scenario is implemented, the cigarette price increase will be Rp 120 per stick. The average cigarette price will rise by Rp 166 per stick if the third scenario is implemented.
All scenarios will result in positive growth in excise revenue. If the first scenario is run, for example, it will add Rp 15.33 trillion to excise revenue during 2025-2026. For the second and third scenarios, excise revenue will increase by Rp 17.7 trillion and Rp 24.3 trillion, respectively.
Total state revenue will also increase in all scenarios implemented. From 2025 to 2026, the total additional state revenue is projected to reach Rp 16.8 trillion if the first scenario is implemented. If the second and third scenarios are implemented, the additional state revenue will reach Rp 19.4 trillion and Rp 25.2 trillion, respectively.
Conversely, in CISDI’s calculations, without excise reform, state revenue will stagnate. In fact, total state revenue risks declining due to market share shifts driven by price elasticity, cross-prices, and income.