Sri Mulyani: Tobacco Tax Increase Hoped to Slash Cigarette Production

TEMPO.CO, Jakarta - Finance Minister Sri Mulyani Indrawati on Monday hoped the increased tobacco tax rates in 2022 will eventually reduce domestic cigarette production by three percent in 2022 to 310 billion cigarettes. 

She said the 12 percent average tax increase across cigarette types has been agreed by President Joko “Jokowi” Widodo. However, the tax increase for “kretek” cigarette categories that are hand-produced are capped at 4.5 percent. 

“There is quite a high difference between machine-produced cigarettes and those produced by hand,” said the Minister. “We expect the increased tariff will be followed by dropping cigarette production from 320 billion individual cigarettes to 310 billion,” said the minister on Monday, December 13.

The tariff increase is also expected to increase the price index from 12.7 percent to 13.78 percent, which in turn is hoped to reduce smoking prevalence among adults from 33.2 percent to 32.26 percent.

The government is also striving to reduce smoking prevalence among children, which is currently at 8.97 percent to 8.83 percent and reaching closer to the National Mid-Term Development Plan of 8.7 percent. However, this tobacco tax rate increase will also likely reduce the number of workers in the cigarette sector by 457-990 people.

She believes the tobacco tariff adjustment will be followed by changes in the minimum retail selling prices (HJE) and likely see an average 12 percent price increase for cigarettes sold in stores. 

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CAESAR AKBAR