The government does not use excise as an instrument for tobacco control or state revenue. The problem is compounded by illegal cigarettes.
WHEN it comes to regulating cigarettes, the Indonesian government lacks a consistent perspective. Scientifically, cigarettes have been proven to trigger various diseases and drain the budget of the Health Care and Social Security Agency (BPJS Kesehatan). Yet this fact has not prompted the government to restrict cigarette production and consumption, on the grounds that doing so could reduce state revenue and disrupt employment.
According to the Ministry of Manpower, around 6 million people are involved in the cigarette industry, from farmers to sellers. Factory workers account for 540,000 people. Annual average excise increases of 8 percent, raids on illegal cigarette factories, and health campaigns have reduced the cigarette industry from 5,000 factories in 2008 to just 1,700 in 2025.
The production has indeed fallen from 356 billion to 306 billion cigarettes, but the number of smokers has risen from 62 million to 75 million over the past decade. Health costs for treating catastrophic diseases have doubled during that period to Rp35 trillion, or 30 percent of the annual value of BPJS Kesehatan claims. In the environmental sector, Indonesian cigarettes generate around 100,000 tons of cigarette butts that pollute the seas and land.
The most sensible perspective from which to view the cigarette problem is health. High cigarette prices make them unaffordable to low-income groups, increase state revenue, and reduce health and environmental costs. The additional revenue could be invested in education subsidies for workers from laboring families who are no longer absorbed by the cigarette industry. However difficult, Asian and European countries have managed to reduce smoking prevalence and the number of smokers by implementing high, uniform excise rates.
The government’s half-hearted solutions have instead created new, more complicated problems. The pretext of protecting small industries and employment, for example, has prompted the government to introduce tiered excise rates based on cigarette production volume. As a result, higher excise rates have not reduced the number of smokers because they have switched to cheaper cigarettes. Compared with other countries, Indonesia’s cigarette excise component is among the lowest, at 60 percent of the retail price per pack, below the World Health Organization (WHO) recommendation of 75 percent.
This magazine’s investigation uncovered another dimension that further complicates the problem: the massive circulation of illegal cigarettes. Not only do unscrupulous businesses evade excise payments, but they also sell cigarettes without excise stamps. There is also the criminal dimension: House of Representatives Finance Commission Chair Mukhammad Misbakhun, whose duties include overseeing excise, is allegedly involved in the sale of counterfeit excise stamps.
Ahead of the 2024 presidential election, businessman Hashim Djojohadikusumo, President Prabowo Subianto’s younger brother, also met with a cigarette businessman from Madura, East Java, who was suspected of producing illegal cigarettes. Haji Her, the businessman, was summoned by the Corruption Eradication Commission (KPK) as part of its investigation into bribery in the importation of goods at the Directorate-General of Customs. The KPK is expanding its investigation into illegal cigarettes.
Customs enforcement against illegal cigarette factories has indeed been massive. Last year, they conducted at least 25,000 raids on illegal factories or arrested sellers of counterfeit excise stamps. However, the enforcement has targeted only small illegal cigarette factories without backing from law enforcement officials or people in power.
Finance Minister Purbaya Yudhi Sadewa is attempting to bring illegal cigarette businesses into the fiscal ecosystem. However, he is repeating the old refrain by proposing a new excise tier with the lowest rate. If the business community’s proposal is approved, excise volumes may increase, but it would not generate significant state revenue. One thing is certain: smokers would continue to benefit from cheap prices.
Therefore, in addition to impartial law enforcement against manufacturers and sellers of counterfeit excise stamps as well as illegal cigarette producers, imposing high excise rates would serve several objectives at once: increasing state revenue, reducing the number of smokers, and lowering health treatment costs. It is time for policy to favor broader public interests, namely health, the economy, and the environment.
