Cigarette Producers: High Excise will Collapse Industry

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  • TEMPO.CO, Jakarta - Ismanu Soemiran, chairman of the Joint Association of Indonesian Cigarette Manufacturers, voiced his objection over the cigarette excise hike set by the Finance Ministry. The hike, which will take effect in 2015, will collapse the tobacco industry, he said.

    Many factories have closed, Ismanu said, and the remaining ones will be force to gut down expenses. "There will be workforce reduction in companies that stay in business," Ismanu told Tempo yesterday.

    Ismanu said he is disappointed by the Finance Ministry's decision to overlook the protest of some 700 national cigarette industries that are being crushed by market depreciation. "The most affected ones are definitely medium and small scale industries," he said.

    Ismanu predicted that the excise hike will trigger the circulation of illegal cigarettes. "That would be counterproductive to the government's objective to raise tax revenues, right?"

    In May this year, PT HM Sampoerna Tbk laid of some 5,000 employees. In September, PT Bentoel International Investama Tbk housed its workers, offering early retirement plans to 8,000 employees. The most recent cigarette producer to cut the number of its workforce was Gudang Garam, firing 4,288 workers two weeks ago.

    Finance Minister Muhammad Chatib Basri said last week that he had sign the new Minister of Finance regulation on excise increase. Cigarette tax for 2015 is raised by an average of 8.72 percent.

    With the increase, the Finance Ministry believed that the state income tax target would be achieved. "The target of Rp120 trillion will definitely be met in 2015," said Andien Hadiyanto, the ministry's fiscal policy chief. Currently, cigarette tax accounts for more than 95 percent of the state tax revenue.