TEMPO.CO, Jakarta - There is no need for the government to be rash in drawing up a regulation to limit tobacco imports. This trade regulation, now the subject of much debate, could cause major problems for the domestic tobacco industry. Blows to the national industry could eventually spell the end of local tobacco.
The restriction of tobacco imports under Trade Ministerial Regulation No. 84/2017 will make it difficult for the cigarette industry to obtain supplies, especially since the regulation limits the import of tobacco types that are only produced in limited quantities domestically. One of these is Virginia tobacco, which comprises only 14 percent by area of tobacco cultivation in Indonesia. Restrictions on the availability of this component will reduce tobacco production.
Any fall in tobacco production would reduce state revenues. That should be avoided since the cigarette industry is the third largest contributor to state coffers. Two years ago, state revenues from cigarette duties were Rp137.9 trillion. If cigarette taxes and VAT is added, the contribution of the tobacco industry reached Rp176.3 trillion.
The government's initiative to protect tobacco farmers deserves support, especially since it is aimed at ensuring that local tobacco production is utilized optimally. But import restrictions should only apply to varieties that can be produced domestically-not to all varieties, and in particular, if there is a variety that cannot be grown at all in this country.
This is why the government should consider the matter carefully. One factor that must guide this is the balance between supply and demand. The fact is that local farmers are only capable of producing around 200,000 tons of tobacco per year. This is far below the needs of industry, which average 350,000 tons, meaning imports are the only choice.
Restrictions on imports are not the only way to protect farmers. The government could improve their financial situation by shortening the supply tobacco chain, which is still too long. One way would be to persuade cigarette factories to develop partnership programs with farmers. A shorter supply chain is far more pressing to ensure the industry can directly absorb tobacco produced by farmers.
As of last week, the Coordinating Ministry for the Economy was still delaying the implementation of the tobacco import regulation. If it is eventually applied, the government must realize this trade regulation has the potential to create a moral hazard because the government will have to uphold transparency at all levels-including pushing for a fair import mechanism to provide equal opportunities for all companies.
The government should monitor all aspects of the import restrictions. A transparent process with strict conditions will prevent a few individuals enjoying all the benefits. With access to information and power, rent-seekers often take advantage of the chaos and complexity of import regulations. They collude with state officials who trade influence and power. But government policies should bring about prosperity for the people.
Amid this debate, the government must act as an impartial referee. It is time the government passed policies that benefit not only farmers but also the domestic industry.
Read the full article in this week's edition of Tempo English Magazine
