Indonesia to implement new cigarette tax layers this year

Indonesia's Finance Minister Purbaya Yudhi Sadewa has confirmed the government's plan to introduce additional excise tax layers for cigarettes, with implementation targeted for this year.

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But this year it will be implemented.

While the exact timeline for the new tax structure is still under discussion with the House of Representatives, Sadewa stated that the government and parliament are currently prioritizing the state budget and other fiscal policies. He anticipates reconvening with lawmakers to finalize the additional layers once these discussions conclude.

Previously, the government aimed to implement these additional layers to combat illegal cigarette circulation and boost state revenue. However, a coalition of civil society organizations, including CISDI, IYCTC, and RUKKI, has voiced strong opposition. They argue that the new layers will not eradicate illegal cigarettes, as manufacturers will continue to operate outside the system to maintain profit margins.

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If we feel that there will definitely still be (illegal cigarettes). Adding layers will not guarantee that illegal cigarettes will voluntarily enter the existing system. Because of course, if they enter the system, it will reduce their profit margin.

Manik Margana Mahendra, Executive Director of IYCTC, described the plan as ironic, especially given the government's current budget austerity. He suggested that adding more tax layers could inadvertently lead to increased health expenditures if cheaper cigarettes remain widely accessible. Currently, Indonesia has eight excise tax categories for machine-made cigarettes and hand-rolled kretek cigarettes (SKT).

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The plan to add cigarette tax layers is ironic. Considering the government is currently saving its budget. If layers are added and cheap cigarettes circulate freely, health budgets could swell because consumers easily get access.