World’s Second-Largest Cigarette Market Raises Levy by 12.5%
World’s Second-Largest Cigarette Market Raises Levy by 12.5%
(Bloomberg) -- Indonesia will raise the excise duty on cigarette products by an average of 12.5% as the country seeks higher earnings from the industry.
The world’s second-largest cigarette market, after China, boosted the levy as it seeks to earn 174 trillion rupiah ($12 billion) in state revenue from tobacco products in 2021, a 5% increase from this year’s target. The industry accounts for a majority of the government’s excise revenue. The higher levies are effective Feb. 1, 2021.
Indonesia sets a different amount of levy on various types of cigarette, from machine- or hand-rolled as well as whether they contain cloves. The government hiked the duty by 23% this year.
While Indonesia seeks to reduce the number of smokers, it’s also mindful of workers who rely on the tobacco industry, which is why it isn’t raising the levy for hand-rolled cigarettes, Finance Minister Sri Mulyani Indrawati said in the Thursday briefing.
Shares of cigarette maker PT Hanjaya Mandala Sampoerna reversed earlier gains to slide 5.3% as of 1:35 p.m. in Jakarta, while PT Gudang Garam lost 7%, among the biggest drag on the benchmark stock index.
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Smoking is prevalent in the country, with a third of adults reporting regular use of tobacco. Public health experts have argued that there’s a link between Indonesia’s smoking rate and its coronavirus case fatality rate. The country reported 171 deaths from Covid-19 on Wednesday, the highest number since the outbreak began.
Indonesia still has among the cheapest cigarettes in the world, with a 20-pack box of the most-sold brand costing $5.23 compared with $11.82 in neighboring Malaysia and $14.86 in Australia, according to a 2017 report by the World Health Organization.
The government expects cigarette production to decline as much as 3.2% to 288.8 billion sticks in 2021, Indrawati said. The country seeks to crack down further on illegally sold cigarettes, she said. Companies that mostly export their products can get the excise ribbon payment deferred for up to 90 days to encourage such shipment, she added.
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