Planned VAT Hike on Cigarettes Will Burden Tobacco Sector: Industry Ministry
Jakarta. Indonesia's Industry Minister has asked the Finance Ministry to review its decision of raising the value added tax on cigarettes, arguing that the increase would only place pressure on cigarette producers, pushing them to cut jobs.
The Finance Minister announced on Tuesday that it would increase the VAT on cigarettes to 8.7 percent from the previous 8.4 percent starting Jan. 1, as part of its efforts to increase state revenue.
"We have received feedback from the tobacco sector and company executives feel that [the increase] is too high," Industry Minister Saleh Husin said on Tuesday. "Of course, the higher VAT will only add more troubles, especially for small businesses."
He added that small cigarette producers have been struggling with higher production costs and a decrease in productivity.
"We have contacted the Finance Ministry to inform them about the complaints [we received]," Saleh said.
Indonesia's tobacco industry is dominated by giants like HM Sampoerna and Gudang Garam, with hundreds of small-scale producers catering to niche markets in the region.
On top of the VAT, cigarette producers are also required to pay excise fees, a cost they usually pass on to customers.
The government is targeting to raise some Rp 148.85 trillion ($10 billion) from cigarette excise next year, up 24 percent from Rp 120 trillion this year.
The cigarette excise will account for 96 percent of total excise revenue next year.
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