A street vendor counts money as he buys a box of A Mild cigarettes produced by HM Sampoerna at a cigarette shop in Jakarta, August 1, 2017. (Reuters Photo/Beawiharta)

Academics Debunk Hoaxes in the Local Tobacco Industry


AUGUST 26, 2017

Jakarta. Steep increases in cigarette excise taxes, instead of incremental ones, will do a better job in reducing poverty and improving health, the director at the University of Indonesia's Center for Health Economics and Policy Studies, or Cheps, said on Friday (25/08).

Cigarettes constitute the second largest expenditure after food among the country's poor, consuming nearly one-fourth of their monthly income. A threefold increase in current cigarette prices, however, would dissuade many from continuing to smoke and would allow greater flexibility in the face of fluctuating food prices, said Budi Hidayat, the head of Cheps.

"There is a direct impact from increasing cigarette prices to the rise of poverty, but after a certain point, [the poverty rate] starts to drop," he added.

A study conducted by the research center found that an increase of more than 112 percent would be sufficient in reducing the poverty level in the country. However, if the government imposes a 150 percent tax on tobacco — which would increase the average price of a pack of cigarettes to Rp 25,000 ($1.90) — two million people would be brought out of poverty.

A 150 percent excise tax would also add Rp 200 trillion to the state coffer over five years.

Conversely, a 10.54 percent increase in tobacco excise, which the government plans to impose this year, would actually increase the number of people living in poverty by 0.16 percent to 29 million people, Budi said.

Rp 50,000 Per Pack

Based on a survey conducted between December 2015 and January 2016, about 72 percent of 1,000 respondents agreed that rising the price of a pack of cigarettes to Rp 50,000 would effectively curb the rate of smoking in the country, while 46 percent agreed to the price increase.

Hasbullah Thabrany, an expert on health economics, said the survey's findings sparked a discussion among the public but failed to push the government to increase the so-called "sin tax" on cigarettes.

Popular Hoax

Officials seemed reluctant to increase the excise on cigarettes to prevent illegal distribution in the market which, according to Hasbullah, can easily be solved by better surveillance and law enforcement.

Loss from illegal cigarettes is relatively low compared to excise collected by the government. For example, the amount of legal cigarettes in 2010 numbered 182 billion, while only 16 billion were illegal. The loss to the state was estimated at Rp 5.8 trillion, compared to an excise collection of Rp 63.29 trillion.

The market for hand-rolled cigarettes also shrunk by 10 percent from 2010 to 2015, during which time the government gradually increased excise taxes on cigarettes, though the number of laborers in the industry increased by 30,000, Cheps said in a statement.

The research center said workers in the sector are threatened by increasing mechanization of the cigarette-producing process as opposed to increased taxes. Workers jobs are relatively safe, Hasbullah added, because large tobacco companies often increase the price of their products in the face of rising production costs.

The expert also said imported cigarettes pose a greater threat to the jobs of tobacco industry workers than increased taxes, as Indonesia currently imports about 40 percent of its total tobacco stockpiles, which can be sold at less than half the price of local cigarettes.

"That's why I said there are many hoaxes in this industry," Hasbullah said.

A Good Business to Keep

Indonesia — home to more than 260 million people — is indeed a big market for cigarette makers. The latest deal in Indonesia's tobacco industry came from Japan Tobacco, which agreed to buy a local kretek, or clove, cigarette producer for $677 million as part of the company's strategy to establish a strong footing in emerging Asian markets.

Hasbullah said many industry players want taxes kept low to keep the rate of smoking high, as companies look to implement long-term strategies to target women and children to start smoking.

"These companies are thinking long-term while our government only thinks short-term," he said.