Jakarta. The Indonesian government is losing an estimated Rp 15 trillion ($940 million) annually due to unpaid taxes on illegal cigarette sales, a senior official revealed on Thursday.

Government data indicates that around 22 billion sticks of illegal cigarettes were sold nationwide last year, accounting for 6.9 percent of the country’s total cigarette production.

"If we multiply the volume of illegal sales by the minimum cigarette tax of Rp 750 per stick, our estimated loss amounts to Rp 15 trillion," said Merrijanti Punguan, Director of Beverage and Tobacco Products at the Industry Ministry.

Indonesia’s total cigarette production reached 318 billion sticks in 2023, highlighting the significant impact of the illegal market on the state budget.

Merrijanti also noted that potential losses could rise sharply to Rp 28.6 trillion if the highest applicable excise tax rate were enforced. She shared these insights during a discussion hosted by B-Universe Media Holdings in Pantai Indah Kapuk 2, Tangerang.

Call for Government Action
Andry Satrio Nugroho, a senior researcher at the Institute for Development of Economics and Finance (Indef), emphasized the urgent need for stricter measures to combat the illegal cigarette trade, which significantly undermines state revenue.

Tobacco consistently contributes around 90 percent of government excise tax revenues, which also include taxes on liquor and other products, Andry said.

He pointed out that losses from illegal cigarettes go beyond unpaid excise taxes, extending to value-added tax (VAT).

“The government must take extraordinary steps to address this issue, or the leakage in state revenues could become uncontrollable,” he warned during the same discussion.