Indonesia Hikes Excise in 2021 to Make Cigarette Unaffordable
Jakarta. Indonesia, the world's largest cigarette market, has announced on Thursday to increase the cigarette excise by an average of 12.5 percent in 2021 in the country's latest attempt in a crusade to reduce the number of smokers and child smokers in the country.
About 33.8 percent of the country's 268 million population are smokers this year. The government hoped the excise increase would bring the smoking prevalence to 33.2 percent, Finance Minister Sri Mulyani Indrawati said.
The government also targeted to lower the smoking prevalence among children to 8.7 percent by 2024, from 9.1 percent today, in line with a target set in Indonesia's medium-term development plan (RPJMN), Sri Mulyani said.
The higher excise rate would increase the cigarette affordability index to 13.7-14 percent next year, from 12.2 percent today.
"So, it becomes more unaffordable," Sri Mulyani said.
The minister said a higher excise would be effective on Jan 1 next year. Machine-rolled white and clove cigarettes would see an increase of between 18.4 percent and 13.8 percent.
The government, on the other hand, excludes hand-rolled clove cigarettes from next year's excise increase to avoid disrupting the labor-intensive industry. The Finance Ministry data showed that hand-rolled clove cigarette makers employ more than 158,000 workers.
"So in this case, we are trying to balance aspects of the health element at the same time considering the general economic conditions, which are affected by Covid-19, especially groups of workers and farmers," said Sri Mulyani.
Shares of top cigarette companies took a beating after the Finance Ministry announcement. The share price of Hanjaya Mandala Sampoerna and Gudang Garam, Indonesia's top two largest cigarette maker by market capitalization, fell by 7 percent — the daily decline floor set by Indonesia Stock Exchange — to trade at Rp 1,670 (12 US cents) and Rp 44,275 apiece, respectively.