Indonesia - American Academy of Pediatrics

Transcription

Click here for the Table of Contents!
Protecting Children and
Families from Tobacco:
Leadership Training
Indonesia
14th Asia Pacific Congress of Pediatrics
September 8, 2012
Asian Pacific Pediatric Association
Table of Contents Click on the links below to access the reports included in this document. WHO Country Health Profile WHO Country Profile WHO NCD Profile GYTS 2006 Fact Sheet (Ages 13‐15) CTFK Advertising, Promotion & Sponsorship CTFK Packaging & Labeling CTFK Smoke Free Places Global CTFK Kreteks in Indonesia Global CTFK Policy Status ‐ Bahasa Global CTFK Policy Status ‐ English Global CTFK Tobacco Burden Facts ‐ Bahasa Global CTFK Tobacco Burden Facts ‐ English Global CTFK Tobacco Industry Profile Global CTFK Tobacco Market Global CTFK Tobacco Taxation Fact Sheet SEATCA Affordability Policy Paper 2011 SEATCA Illicit Cigarette Consumption 2011 SEATCA Illicit Cigarettes SEATCA Tobacco Tax Report Card 2010 World Lung ‐ Tobacco Economics in Indonesia Additional Resources ,
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WHO Report on the Global Tobacco Epidemic, 2011
Country profile
Indonesia
Note: Where no data were available, "…" shows in the table. Where data were not required, "–" shows in the table.
WHO Framework Convention on Tobacco Control (WHO FCTC) status
Date of signature
Date of ratification (or legal equivalent)
Not signed
Not ratified
Socioeconomic context
Population (thousands)
Income group
232 517
Middle income
Prevalence of tobacco use
Tobacco use data as provided by the country from the latest survey result available to WHO as at
1 November 2010
Adult prevalence, smoking (%)*
Male
Female
Total
Any smoked tobacco
Current
Daily
...
46.8
...
3.1
...
24.2
Adult prevalence, smokeless tobacco use (%)* . . .
Male
Female
Total
Cigarettes
Current
Daily
...
...
...
...
...
...
...
...
...
* Ages 10+, Riset Kesehatan Dasar
(Basic Health Research), 2007
"…" Data not reported/not available.
WHO age-standardized estimated prevalence of smoking among those aged 15 years or more:
Year 2009
Adult prevalence, smoking (%)
Male
Female
Total
Any smoked tobacco
Current
Daily
61
54
5
4
33
29
Cigarettes
Current
Daily
57
49
4
3
30
26
Country Profile: Indonesia
Tobacco control measures and programmes as at 31 December 2010
Smoke-free environments
2010
Public places with smoke-free legislation:
Health-care facilities
Educational facilities except universities
Universities
Government facilities
Indoor offices
Restaurants
Pubs and bars
Public transport
All other public places
Compliance score §
National law requires fines for smoking
Fines levied on the establishment
Fines levied on the smoker
Dedicated funds for enforcement
Citizen complaints and investigations
Yes
Yes
Yes
No
No
No
No
No
NA
1
Yes
No
Yes
No
No
§ A score of 0—10, where 0 is low compliance.
Subnational laws on smoke-free environments
No complete bans were reported. Partial bans may exist in some jurisdictions.
2
Treatment of tobacco dependence
2010
Is there a toll-free telephone quit line/help line with a live person available to
discuss cessation with callers in your country?
No
Nicotine replacement
therapy (e.g., patch,
gum, lozenge, spray or
inhaler)
Is this product legally sold in the country?
No
Where and how can this product be legally
purchased in your country?
—
Does the national/federal health insurance or the
national health service cover the cost of this
product?
Is any NRT on the country's essential drugs list?
—
...
Is this product legally sold in your country?
No
product?
Is this product legally sold in your country?
—
Bupropion (e.g., Zyban,
Wellbutrin)
Varenicline
Is smoking cessation
support available in the
following places in your
country?
Does the
national/federal health
insurance or the
national health service
cover the cost of this
support?
product?
Health clinics or other primary care facilities
Hospitals
Office of a health professional
In the community
Other
Health clinics or other primary care facilities
Hospitals
Office of a health professional
In the community
Other
3
—
Yes
—
—
Yes in some
Yes in some
No
Yes in some
No
...
No
—
...
—
Cigarettes
Smokeless
tobacco
2010
Health warnings on tobacco packages
Does the law mandate that health warnings appear on tobacco packages?
What percentage of the principal display areas of the package is legally mandated to be
covered by health warnings? FRONT AND REAR COMBINED
What percentage of the principal display areas of the FRONT of the package is legally
mandated to be covered by health warnings?
What percentage of the principal display areas of the REAR of the package is legally
mandated to be covered by health warnings?
Does the law mandate that the warning be placed at the top of the principle display areas
of the package?
Does the law mandate font style, font size and colour for package warnings?
Are the health warnings rotating on packages?
Are the health warnings on packages written in the principal language(s) of the country?
Does the law require that health warnings on packages are not obscured in any way,
including by required markings such as tax stamps?
Do the health warnings on packages include a photograph or graphic?
Do health warnings appear on each package and any outside packaging and labelling used
in the retail sale?
Does the law on health warnings apply to products whether manufactured domestically,
imported, AND for duty-free sale?
Does the law state that warnings on packages do not remove or diminish the liability of the
tobacco industry?
Do health warnings on packages describe the harmful effects of tobacco use on health?
Does the law mandate specific health warnings on cigarette packages?
How many specific health warnings are approved by the law?
Does the law require or establish fines for violations regarding health warnings on
packages?
Are there any laws requiring that cigarette packaging and labelling do not use misleading
terms which imply the product is less harmful than other similar products, such as “low
tar”, “light”, “ultra-light”, or “mild”?
Are there any laws requiring that cigarette packaging and labelling do not use figurative or
other signs, including colours or numbers, as substitutes for prohibited misleading terms
and descriptors?
Are there any laws requiring that cigarette packaging and labelling do not use descriptors
depicting flavours?
Does the law ban the display of quantitative information on emission yields (such as tar,
nicotine and carbon monoxide) on cigarette packaging, including when used as part of a
brand name or trademark?
Does the law mandate the display of qualitative information on relevant constituents and
emissions of tobacco products on cigarette packaging?
Does the law mandate that this information is displayed on one or more of the principal
display areas (front, rear) of the package?
Does the law prevent the display of expiry dates on cigarette packaging?
Is it mandatory for the quit line number to appear on packaging or labelling?
Does the law mandate plain packaging (ie. prohibit the use of logos, colours, brand images
or promotional information on packaging other than brand names and product names
displayed in a standard colour and font style)?
^ Not mandated.
4
Yes
^
—
^
—
^
—
No
No
No
No
Yes
No
No
No
No
No
No
Yes
No
No
No
No
No
No
Yes
Yes
1
Yes
No
No
—
No
No
No
No
No
No
No
No
No
No
No
—
—
No
No
No
No
No
No
Bans on tobacco advertising, promotion and sponsorship
2010
Direct bans
National TV and radio
International TV and radio
Local magazines and newspapers
International magazines and newspapers
Billboards and outdoor advertising
Point of sale
Internet
Other direct bans
Compliance score of direct bans §
No
No
No
No
No
No
No
No
—
Indirect bans
Free distribution
Promotional discounts
Non-tobacco goods and services identified with tobacco brand names
Brand name of non-tobacco products used for tobacco product
Appearance of tobacco brands in TV and/or films (product
placement)
Appearance of tobacco products in TV and/or films
Sponsored events
Other indirect bans
Compliance score of indirect bans §
Are there subnational laws or regulations banning some or all types
of tobacco advertising, promotion and sponsorship mentioned in the
above questions?
§ A score of 0—10, where 0 is low compliance.
5
Yes
No
No
No
No
No
No
No
0
No
Tobacco taxation policy as at 31 July 2010
Price of lowest-cost brand of cigarettes (Bentoel Sejati 12)
A
Tax inclusive retail sales price (TIRSP) for a pack of 20 cigarettes
2008
IDR
9166.67
2010
IDR
9166.67
2008
IDR
9500.00
2010
IDR
11100.00
Price of Marlboro or similar brand of cigarettes (Marlboro)
A
Tax inclusive retail sales price (TIRSP) for a pack of 20 cigarettes
Taxes on the most popular brand of cigarettes (Sampoerna A mild 16)
WHO's
comparable
estimate for
2008
WHO's
comparable
estimate for
2010
IDR
12500.00
USD
1.14
IDR
13125.00
USD
1.47
53
6
39
8
—
—
54
46
0
8
—
—
Price of most sold brand, pack of 20 cigarettes
In currency reported by country
In US$ at official exchange rate
Taxes on this brand (% of retail price)
Total taxes
Specific excise
Ad valorem excise
Value added tax (VAT)
Import duty
Other taxes
ᄌ
ᄌ Individual categories of tax may not add to total due to rounding.
National tobacco control programme
Specific national government objectives in tobacco control
National agency or technical unit for tobacco control
Number of full-time equivalent staff
Government expenditure on tobacco control:
Year of expenditure
2010
Yes
Yes
12
IDR 300 000 000
2008
US$ 30 931
*****
6
Indonesia
2010 total population: 239 870 937
Income group: Lower middle
NCD mortality*
Proportional mortality (% of total deaths, all ages)*
males females
582.3
481.7
2008 estimates
Total NCD deaths (000s)
NCD deaths under age 60
(percent of all NCD deaths)
Age-standardized death rate per 100 000
All NCDs
Cancers
Chronic respiratory diseases
Cardiovascular diseases and diabetes
33.9
26.3
757.0
135.9
102.3
400.2
537.9
108.9
52.4
300.3
Injuries
9%
CVD
30%
Communicable,
maternal,
perinatal and
nutritional
conditions
28%
Behavioural risk factors
2008 estimated prevalence (%)
Current daily tobacco smoking
Physical inactivity
males females
53.4
3.4
31.9
27.9
total
28.2
29.9
males females
38.9
36.0
6.0
6.5
16.3
25.6
2.6
6.9
32.8
37.2
total
37.4
6.3
21.0
4.8
35.1
Metabolic risk factors
2008 estimated prevalence (%)
Raised blood pressure
Raised blood glucose
Overweight
Obesity
Raised cholesterol
Cancers
13%
Other NCDs
10%
Diabetes
3%
Respiratory
diseases
7%
NCDs are estimated to account for 64% of all deaths.
Metabolic risk factor trends
Mean systolic blood pressure
130
24
kg/m2
mmHg
128
126
124
122
22
20
18
120
16
1980
1984
1988
1992
1996
2000
2004
2008
1980
Mean fasting blood glucose
5.6
1984
5.4
5.2
5.0
1988
1992
1996
2000
2004
2008
2004
2008
Mean total cholesterol
5.0
mmol/l
mmol/l
Mean body mass index
26
4.8
4.6
4.4
4.2
4.8
4.0
4.6
1980
1984
1988
1992
1996
2000
2004
Males
2008
1980
1984
1988
1992
1996
2000
Females
Country capacity to address and respond to NCDs
Has a Unit / Branch / Dept in MOH with responsibility for NCDs Yes
Has an integrated or topic-specific policy / programme / action
plan which is currently operational for:
Cardiovascular diseases
Yes**
Cancer
Yes**
Chronic respiratory diseases
Yes**
Diabetes
Yes**
Alcohol
Yes**
Unhealthy diet / Overweight / Obesity
Yes**
Physical inactivity
Yes**
Tobacco
Yes**
There is funding available for:
NCD treatment and control
NCD prevention and health promotion
NCD surveillance, monitoring and evaluation
Yes
Yes
Yes
National health reporting system includes:
NCD cause-specific mortality
NCD morbidity
NCD risk factors
Yes
Yes
Yes
Has a national, population-based cancer registry
No
* The mortality estimates for this country have a high degree of uncertainty because they are not based
** = covered by integrated policy/programme/action plan
on any national NCD mortality data. The estimates are based on a combination of country life tables,
cause of death models, regional cause of death patterns, and WHO and UNAIDS program estimates
for some major causes of death (not including NCDs).
World Health Organization - NCD Country Profiles , 2011.
Number of tobacco (m)POWER measures
implemented at the highest level of achievement
0/5
Indonesia (Ages 13-15)
Global Youth Tobacco Survey (GYTS)
FACT SHEET
•
•
•
•
•
The Indonesia GYTS includes data on prevalence of
cigarette and other tobacco use as well as information on five
determinants of tobacco use: access/availability and price,
exposure to secondhand smoke (SHS), cessation, media and
advertising, and school curriculum. These determinants are
components Indonesia could include in a comprehensive
tobacco control program.
The Indonesia GYTS was a school-based survey of students
in Kelas 1, 2 and 3 conducted in 2006.
•
•
•
•
•
•
A two-stage cluster sample design was used to produce
representative data for Indonesia. At the first stage, schools
were selected with probability proportional to enrollment size.
At the second stage, classes were randomly selected and all
students in selected classes were eligible to participate. The
school response rate was 100.0%, the class response rate was
100.0%, the student response rate was 94.3%, and the overall
response rate was 94.3%. A total of 3,737 students aged 13-15
participated in the Indonesia GYTS.
Prevalence
37.7% of students had ever smoked cigarettes (Boy = 62.9%, Girl = 15.6%)
13.5% currently use any tobacco product (Boy = 24.1%, Girl = 4.0%)
11.8% currently smoke cigarettes (Boy = 23.9%, Girl = 1.9%)
3.8% currently use other tobacco products (Boy = 5.3%, Girl = 2.4%)
95.1% of never smokers are likely to initiate smoking next year
Highlights
Knowledge and Attitudes
19.4% think boys and 3.5% think girls who smoke have more friends
11.5% think boys and 3.8% think girls who smoke look more attractive
Access and Availability - Current Smokers
15.4% usually smoke at home
60.7% buy cigarettes in a store
69.9% who bought cigarettes in a store were NOT refused purchase because of their age
Exposure to Secondhand Smoke (SHS)
64.7% live in homes where others smoke in their presence
81.4% are around others who smoke in places outside their home
88.6% think smoking should be banned from public places
60.5% think smoke from others is harmful to them
62.1% have one or more parents who smoke
16.8% have most or all friends who smoke
• 13.5% of students currently use
any form of tobacco; 11.8%
currently smoke cigarettes;
3.8% currently use some other
form of tobacco.
• SHS exposure is high – nearly
two-thirds of the students live
in homes where others smoke,
and 4 in 5 students are exposed
to smoke around others outside
of the home; over 3 in 5
students have at least one
parent who smokes.
• Six in 10 students think smoke
from others is harmful to them.
• Nine in 10 students think
smoking in public places
should be banned.
• More than three-quarters of the
current smokers want to stop
smoking.
Cessation - Current Smokers
78.1% want to stop smoking
85.6% tried to stop smoking during the past year
82.2% have ever received help to stop smoking
• One in 10 students has an
object with a cigarette brand
logo on it.
Media and Advertising
89.9% saw anti-smoking media messages, in the past 30 days
93.3% saw pro-cigarette ads on billboards, in the past 30 days
83.2% saw pro-cigarette ads in newspapers or magazines, in the past 30 days
10.3% have an object with a cigarette brand logo
13.6% were offered free cigarettes by a tobacco company representative
School
68.7% had been taught in class, during the past year, about the dangers of smoking
48.9% had discussed in class, during the past year, reasons why people their age smoke
61.5% had been taught in class, during the past year, the effects of tobacco use
For additional information, please contact:
Tjandra Y Aditama
•
e-mail: [email protected]
• Nine in 10 students saw antismoking media messages in the
past 30 days; over 9 in 10
students saw pro-cigarette ads
on billboards and more than 4
in 5 saw pro-tobacco ads in
newspapers or magazines in the
past 30 days.
Tobacco Control Policy Fact Sheet
Indonesia: Advertising, Promotion & Sponsorship
Regulated Forms of Tobacco Advertising, Promotion and Sponsorship
Banned
Domestic TV and radio
Some
Restrictions
Allowed
Uncertain
Regulated Forms of Tobacco Advertising, Promotion and Sponsorship (cont'd)
N/A
Banned
Some
Restrictions
Allowed
Uncertain
N/A
Paid placement in TV, film, or
other media
Domestic newspapers and magazines
Other domestic print media
Domestic internet communications
Unpaid depiction in TV, film, or
other media
Financial support to groups,
events, etc.
Domestic internet sales
Publicity of financial support to
groups, etc.
International newspapers and
magazines
Financial support to venues for
decorations, renovations
International internet communications
Financial support to venues for
direct customer sales
International internet sales
Outdoor advertising
Point of sale advertising
Payments for exclusive sale or
prominent display
Promotion by false, misleading,
or deceptive means
Point of sale product display
Vending machines
Definitions of Key Terms - Alignment with the FCTC
Aligns
Conventional mail
Does Not
Align
N/A
Telephone and cellular phone
Tobacco Sponsorship
Brand marking
Tobacco Advertising and Promotion
Tobacco packaging, labeling and inserts
Tobacco Product
Free distribution of tobacco products
Promotional gifts in conjunction with
product purchase
Actions Required for Forms of Advertising, Promotion & Sponsorship Not Banned
Required
Competitions associated with products
Direct targeting of individuals
Brand stretching
Health warning messages required on permitted
forms of APS
Toys resembling tobacco products
Disclosed information readily available to the public
Penalties
Retailer incentive programs
Yes
Violation of advertising and promotion provisions
Violation of sponsorship provisions
Last updated: December 20, 2011
Uncertain
or N/A
Disclosure to the govt. of info on APS activities and
expenditures
Reverse brand stretching
Candy resembling tobacco products
Not
Required
No
Indonesia: Packaging & Labeling
Health Warnings/Messages Features
Other Packaging and Labeling Requirements
Smoked Tobacco Products
Type of Warnings
Required
Some
Restrictions
Not
Required
Uncertain
Yes
No
Text Warnings/Messages
On front and back of packages
Warnings on unit packaging and labeling
(e.g. packs)
No
% of principal display areas covered
0
Rotation required?
Warnings on outside packaging and
labeling (e.g. cartons)
No
Number of messages
Warning texts iin the principal language(s)
of the country
1
Warnings may not be placed where they
may be concealed or damaged when
opening the pack
Smokeless Tobacco Products
Type of Warnings
Not Required
% of principal display areas covered
Warnings may not be placed where they
may be concealed by tax stamps or other
required markings
0
Rotation required?
No
Number of messages
n/a
Qualitative (descriptive) constituents and
emissions disclosures
Ban on display of figures for emission
yields (including tar, nicotine, etc.)
Definitions of Key Terms - Alignment with the FCTC and its guidelines
Aligns
Does Not
Align
N/A
Plain or standardized packaging
Prohibition on misleading packaging and
labeling
Tobacco Product
Outside Packaging and Labeling
Content of the Warnings/Messages
Penalties
Yes
No
Health impacts
Manufacturer
Advice on cessation
Importer
The addictive nature of tobacco
Wholesaler
Adverse economic and social outcomes
Retailer
The impact of tobacco use on friends and family
A quitline phone number
Indonesia: Smoke Free Places
Smoke Free Status of Indoor Workplaces, Indoor Public Places, and Public Transport
100% Smoke
Free
Some
Restrictions
Smoking Not
Restricted
Uncertain
Definitions of Key Terms - Alignment with the FCTC and its guidelines
N/A
All workplaces
Second Hand Smoke
Government facilities
Smoking or Smoke
Hospitals
Public Place
Residential healthcare facilities - public areas
Workplace
Residential healthcare facilities - patient rooms
Public Transport
Non-residential healthcare facilities
Indoor or Enclosed
Childcare facilities/preschools
Tobacco Product
Primary and secondary schools
Aligns
Does Not
Align
N/A
Yes
No
Uncertain
Yes
No
Penalty
Neither
Smoke Free Status of Outdoor Places
Universities/vocational facilities
Shops
Cultural facilities
Indoor stadium/arenas
Is one or more outdoor place
required to be smoke free?
Enforcement Authority
Restaurants
Bars/pubs/nightclubs
Is an enforcement authority identified?
Casinos
Hotels/lodging - public areas
Duties and Penalties
Duty
Hotels/lodgings - guest rooms
Prisons/detention facilities - public areas
Prisons/detention facilities - cells
Trains, buses and other shared ground transportation
Taxis
Aircraft
Watercraft
Transport facilities
Imposed on Owner/Employer?
Post signs
Remove ashtrays
Steps to require a person to stop smoking
Imposed on smoker?
Not to smoke where prohibited
Kreteks in Indonesia
August 2009
Kreteks dominate the tobacco market in Indonesia. In 2007, 92% of smokers prefer kreteks over
conventional white cigarettes.1 Local manufacturers have traditionally ruled the kretek market.
However, over the last four years, transnational tobacco companies (TTCs) like Philip Morris
International (PMI) and British American Tobacco (BAT) have aggressively invested in Indonesia’s
emerging market by acquiring local kretek manufacturers (HM Sampoerna in 2005 and Bentoel
Internasional Investama in 2009, respectively).
What are Kreteks?
Kreteks are clove-flavored cigarettes originally from Indonesia, but are sold internationally. They are
either hand-rolled or machine-rolled and wrapped like conventional cigarettes in cornhusks or white,
black or brown paper. Kreteks are manufactured both with and without filters.
• The tip of the rolling paper is often dipped in saccharine, an artificial sweetener.2
• Kreteks are made from as many as 20 to 30 different types of tobacco (60-80% of composition),
cut up clove buds (20-40%) and special flavorings called
“sauces”, which are unique to each brand.
o Up to 100 different flavoring ingredients can be found in
the “sauce.”2 PT Djarum, for example, uses ingredients
such as chocolate, dried fruit, and coffee in their recipe.3
o Cloves provide kreteks with their distinctive flavor and
smell. Cloves also contain eugenol which is an
anesthetic that lessens the harshness of smoke.
• The majority of tobacco used in kreteks is domestically grown
in Java, Sumatra, Bali, and Lombok.2
Different Types of Kreteks
Kreteks are so common in the Indonesian market that the term “cigarettes” usually refers to kreteks.
Other manufactured cigarettes that do not contain clove buds and flavoring “sauces” are referred to as
“white cigarettes.”
• Rokok Klobot Kretek (KLB): cornhusk paper that are made by hand.
• Sigaret Kretek Tangan (SKT): hand-rolled, filterless kretek.
• Sigaret Kretek Tangan Filter (SKTF): hand-rolled, filter-tipped kreteks.
• Sigaret Kretek Mesin (SKM): machine-rolled, filter kreteks that are often identical to white
cigarettes in appearance.
• Sigaret Kretek Mesin Mild (SKM mild): machine-rolled kreteks that are marketed as
containing lower levels of tar and nicotine.
• Sigaret Putih Mesin (SPM): white cigarettes.
Health Harms
No scientific studies have found that smoking kreteks is less harmful than smoking conventional white
cigarettes.4 Kreteks contain tobacco and therefore have the same health risks as white cigarettes.
Additionally, cloves and chemical additives in a kretek’s flavoring “sauce” have health risks.
WWW.TOBACCOFREECENTER.ORG
1
•
Daily cigarette smokers have the same physiological response to kreteks as they do to white
cigarettes including increased heart rate, increased blood pressure, elevated levels of plasma
nicotine and exhaled carbon monoxide.5
• In machine-based tests, kreteks delivered more nicotine, carbon monoxide and tar than white
cigarettes.5
• Smoke inhaled from a kretek may contain three additional toxic chemical compounds: eugenol,
anethole, and coumarin. Of 33 Indonesian kretek brands tested in 2007, all 33 brands contained
eugenol, 13 brands contained anethole, and coumarin was detected found in 19 brands.4
o Eugenol:
• Inhaled eugenol numbs pain receptors in the mouth and throat, which decreases
the harshness of smoke,6 thereby making smoking initiation easier.4
• Eugenol, in high doses, has been classified as a possible human carcinogen and
identified as being toxic to lung tissue.7
• When eugenol is inhaled, rather than ingested in food products, it is introduced
into the body at levels much higher then daily recommended values.4
Cloves
• In general, side effects associated with inhaling smoke containing eugenol include
vomiting, sore throat, seizure, difficulty breathing, vomiting of blood, blood
disorders, kidney failure and liver damage.8
o Coumarin:
• Coumarin is a flavoring agent that is found in natural products like cinnamon,
sweet grasses and vanilla grasses. Coumarin is a natural pesticide produced by
plants and some synthetic derivatives are used commercially in rat poison as well
as in blood thinners.9
• The flavoring “sauce” of a kretek is likely the source of coumarin because
tobacco and clove buds lack significant amounts of coumarin.4
• In large doses, coumarin has been shown to have toxic effects on the nervous
systems, heart blood vessels and liver of animals. It can also cause tumors in
Cinnamon
humans.10
• Coumarin has been banned as a flavoring agent in the United States since 1954.10
• In 2007, coumarin was detected in 19 out of 33 brands of Indonesian kreteks,
including two brands (Jakarta Sigaret and Prima) acquired
by BAT in its 2009 Bentoel takeover.4
o Anethole:
• Anethole gives kreteks a sweet taste and a licorice-like order
and is found in the flavoring “sauce.”
• Anethole has been shown to be toxic to the liver. It has also
been found to cause cancer and can mutate animal cells.11
TTCs are fully aware of the additional dangers of kreteks. Over ten years ago, X Mild Kreteksthby
the 6
BAT sought to develop a kretek-like product in Indonesia containing levels of Benthoel,
most
popular
eugenol that exceeded international guidelines for eugenol uptake.12 At that time, machine-rolled
the company chose not to bring the product to market fearing bad publicity from kretek in Indonesia
marketing a product in Indonesia that could not be marketed in other countries.
However in 2009, BAT acquired Bentoel and its associated kretek brands. Following this acquisition,
BAT’s top executives were asked about the dangers of kreteks, and responded that they had reviewed
the previous evidence and unlike before were now able to “justify” the sale of kreteks.13
2
The Kretek Market
Hand-rolled kreteks (SKT) have been made in Indonesia since the late 1800s. Kreteks exploded onto the
market in the mid 1970s when machine-rolled kreteks (SKM) went into production effectively edging
out white cigarettes (SPM) as the most popular tobacco product in the country.14
• Currently, the sale of machine-rolled kreteks is on the rise.15 In 2006, approximately 56% of all
cigarettes were machine-rolled kreteks and an estimated 35% were hand-rolled kreteks.16
• The manufacturing of kreteks is dominated by local companies. However, TTC’s see the
potential profits in kretek sales and are currently investing heavily in buying out local
companies.
Market Share of Machine-rolled Kreteks, 200817
Other
23%
Gudang
Garam
33%
Nojorano
6%
Bentoel
5%
Djarum
15%
HM
Sampoerna
18%
Note: White cigarette brands produced by BAT, PMI and Bentoel are not included and while some white cigarettes may
be included in the “other” category, this is an accurate estimate of the market shares of machine-rolled kreteks.
•
•
•
Kreteks are offered in packs of 10, 12, or 16 sticks and can be purchased individually making
them much cheaper than white sticks which are sold in packs of 20.14
Kreteks have mass appeal in Indonesia.
o According to the present director of BAT Indonesian operations “smoking kreteks is an
ingrained part of Indonesian culture,”18 a smoking culture that is dominated by men.
o Kreteks are attractive to youth because of their sweeter taste and milder feeling. Kreteks
are often referred to as “training cigarettes,”6 making it easier for new smokers to become
addicted.
o Kreteks using misleading terms such as “light” and “mild” are growing (17.2% market
share in 2007).14 The most recognizable being A Mild with 14.6% of the market in
2008.17
Kreteks are exported to countries including Malaysia, Hong Kong, the Middle East, Germany
and United States. Djarum licenses the production of its products to a factory in Brazil that
provides kreteks to the Latin American region.14
3
Production and Labor Practices
The production of kreteks is considered a “cottage industry” which means it can be done on a small
scale and is very labor intensive. The small scale of production is unique in Indonesia, and the tobacco
industry is one of the few left where small-scale, home based manufacturers compete with corporate
giants.19
• It is estimated that there are over 3,300 local cigarette manufacturers in Indonesia, 20 the majority
of which make kreteks.
• The kretek manufacturing industry employed over 260,000 Indonesians in 200620 due in large
part to hand-rolled products.21
o Women are the main employees in hand-rolled kretek facilities
and traditionally tobacco production in Indonesia has been
considered women’s work.22
Hand-rolled kreteks “are the main reason why the kretek
industry is one of the largest employers of women in
Indonesia today.”2
Typically, a woman can produce 5000-8000 sticks a day.
She is then paid on a piece rate basis.2
• Most production of kreteks occurs in company owned factories but some
rollers and packers still operate out of their homes and then return the
product to the factories.2
Women hand-rolling cigarettes,
• The taxation of the tobacco industry favors smaller hand-rolling
Sampoerna
operations. Hand-rolled kreteks are taxed between 4-22% depending
(http://www.flickr.com/photos/2330
on the size of the production facility (smaller factories are taxed less) 6798@N04/2387205713)
and machine rolled kreteks and cigarettes are taxed 26-40%.23
• Due to the tax advantage for smaller operations, PMI’s HM Sampoerna contracts all of its handrolled products to 37 third-party operators (TPOs) that employ 62,000 workers. 24
o “The TPO scheme is a pioneer in the development of labor intensive industries that do
not require high technology, and thus is well placed to support the development in rural
areas”-Yos A. Ginting, director of corporate affairs, 2008.1
• 72% of the cloves produced in Indonesia are used in the kretek industry.23
o The government supports a smallholder clove intensification
program (started in the 1960s) that provides cheap credit and
technical advice to small-scale clove farmers; larger Kretek
manufacturers like Sampoerna also provide technical advice.19
• Tobacco, like cloves, is produced in Indonesia on a small scale. Family
operated farms are made up of 2-3 hectares of land.2
o On a national level, tobacco farming and manufacturing
contribute little to the total level of employment in Indonesia
(1.07-1.23%). Even in East Java, where the tobacco sector is
largest, only 0.5% of total arable land is used for tobacco farming
Clove farming
and manufacturing provides only 2.9% of jobs.23
4
Influence of the Kretek Industry
TTCs have a great deal of political and economic influence. The TTCs use their influence to stop or
weaken tobacco control policies in countries around the world.25 In Indonesia, however, kretek
manufacturers are often better positioned to aggressively market their products and sway political
decisions surrounding tobacco control. Despite the strong positioning of local companies, the infiltration
of TTCs into the kretek market in the last four years has allowed them to buy influence that they did not
have before.12
• Lobbying by the kretek industry is conducted, in part, by the Association of Cigarette Producers
(GAPPRI). Membership includes three major kretek manufacturers, eight medium-size kretek
manufacturers and more than 600 small scale kretek manufacturing companies in Indonesia
(Sampoerna and Bentoel are members).26
o GAPPRI claims that it is protecting the interest of all people with a vested interest in the
kretek industry including those who are directly and indirectly supported by the
industry.26, 27
o In reality, GAPPRI poses a serious threat to the health of Indonesians by actively
blocking strong tobacco control legislation including Indonesia’s ratification of the
Framework Convention on Tobacco Control (FCTC). In 2007, after a pivotal meeting of
GAPPRI, other industry representatives, various government leaders and legislators from
the House of Representatives, Industry Minister Fami Idris told the press that “we [the
Indonesian government] are reluctant to sign the Framework Convention on Tobacco
Control because the cigarette industry is able to boost the agricultural sector and paper
industry.”28
• The white cigarette producers are represented by GAPRINDO made up of 12 member
companies,29 including PMI and BAT.
o GAPRINDO and GAPPRI have many of the same policy goals especially relating to
health warnings, ingredient disclosure and advertising bans. They differ on taxation
which currently favors kretek manufactures.12
• The industry used many tactics to block the passing of a national bill on tobacco control in 2009
including bringing in farmers to protest the bill and paying the Indonesia Tobacco Farmers
Association to lobby the House.27
• In 2009, the industry financed election campaigns using cigarette packs branded with party
logos.27
• On a regional level, kretek giant Gudang Garam was recently involved in drafting smoke-free
legislation in Kediri to weaken bans in public places to protect profits.30
• In 1999, legislation was passed to regulate the amount of tar and nicotine in cigarettes. However,
this legislation was eliminated in 2003 due to pressure from the industry.31
Kreteks are the number one tobacco product in Indonesia and the clove-flavored cigarettes are sold all
over the world. Kreteks are traditional to Indonesian culture and attract users because the eugenol in
cloves numbs the throat. Kreteks, however, are not less harmful than conventional cigarettes.
Understanding how the kretek market works in Indonesia means better understanding tobacco use in the
5th largest market in the world.32 Currently, local companies dominate but TTCs are aggressively
targeting the Indonesian market. Acquisitions by PMI and BAT have the potential to change the industry
that already has a great deal of political and economic influence.
As evidenced above, the cigarette industry has succeeded in influencing government decisions that place
a higher value on cigarette production than on the health of the people of Indonesia. Ratification of the
FCTC will curb the influence of local and international tobacco companies and protect the health of all
Indonesians.
5
1. Brinson B. A good match. Tobacco Reporter. 2008 November.
2. Hanusz M. Kretek: The culture and heritage of Indonesia's clove cigarette. Jakarta: Equinox Publishing (Asia) Pte. Ltd.;
2000.
3. Djarum. Kretek recipe. 2005 [cited 2009 August 19]; Available from: http://www.djarum.com/en/.
4. Polzin GM, Stanfill SB, Brown CR, Ashley DL, Watson CH. Determination of eugenol, anethole, and coumarin in the
mainstream cigarette smoke of Indonesian clove cigarettes. Food Chem Toxicology. 2007 Oct;45(10):1948-53.
5. Malson JL, Lee EM, Murty R, Moolchan ET, Pickworth WB. Clove cigarette smoking: biochemical, physiological, and
subjective effects. Pharmacol Biochem Behavior. 2003 Feb;74(3):739-45.
6. Evaluation of the health hazard of clove cigarettes. Council on Scientific Affairs. JAMA. 1988 Dec 23-30;260(24):3641-4.
7. International Agency for Research on Cancer (IARC). IARC monographs on the eveluation of carcinogenic risks to
humans.Vol 36. Allyl compounds, aldehydes, epoxides and peroxides. World Health Organization; 1999. Available from:
http://monographs.iarc.fr/ENG/Monographs/vol36/volume36.pdf.
8. Medline Plus. Clove (Eugenia aromatica) and clove oil (eugenol). US National Library of Medicine, National Institutes of
Health; 2009 January 1 [cited 2009 August 19]; Available from:
http://www.nlm.nih.gov/medlineplus/druginfo/natural/patient-clove.html.
9. Scully M. Warfarin therapy: Rat poison and the prevention of thrombosis. The Biochemist. 2002:15-7.
10. Givel M. A comparison of US and Norwegian regulation of coumarin in tobacco products. Tobacco Control. 2003
Dec;12(4):401-5.
11. Lin F. Trans-Anethole. US Food and Drug Administration; 1998. Available from:
http://www.inchem.org/documents/jecfa/jecmono/v28je10.htm.
12. Lawrence S, Collin J. Competing with kreteks: Transnational tobacco companies, globalisation, and Indonesia. Tobacco
Control. 2004 Dec;13 Suppl 2:ii96-103.
13. British American Tobacco. Half-yearly report presentation. 2009 July 30. Available from:
http://www.bat.com/group/sites/uk__3mnfen.nsf/vwPagesWebLive/DO72TJQU/$FILE/medMD7UVL9B.pdf?openelement
14. Mitchell H. Kreteks faces the future. Tobacco International. 2007 April.
15. Gulmez H. Indonesia: Shangri-La for the industry? Tobacco Journal International. 2007 September 13.
16. More cigarettes produced. Indonesia produced 230.3 billion cigarettes in 2006, up 4.5 per cent from the previous year.
Tobacco Journal International. 2007 February 28.
17. Euromonitor International [database on the Internet]. Cigarettes: Indonesia. Euromonitor International. c 2009 [cited 2009
August 18].
18. Oxford Business Group. Tobacco producers roll with the times. Emerging Markets Economic Briefings [serial on the
Internet]. 2009 [cited 2009 July 21]: Available from: http://www.oxfordbusinessgroup.com/weekly01.asp?id=4534.
19. Tuinstra T. A new chapter. Tobacco Reporter Magazine. 2007 February.
20. Badan Pusat Statistik (BPS) Republik Indonesia (Statistics Indonesia of the Republic of Indonesia). Statistical yearbook
of Indonesia, 2008. Jakarta: BPS; 2009.
21. Lambat I. Big league. Tobacco Reporter. 2009 July.
22. Barraclough S. Women and tobacco in Indonesia. Tobacco Control. 1999 Autumn;8(3):327-32.
23. Barber S, Adioetomo S, Ahsan A, Setynoaluri D. Tobacco economics in Indonesia. Paris: International Union Against
Tuberculosis and Lung Disease; 2008. Available from: http://www.worldlungfoundation.org/downloads/tobacco_Barber.pdf.
24. Hanjaya Mandala Sampoerna. Investing for the future: 2008 annual report. Jakarta: Sampoerna; 2009. Available from:
http://www.sampoerna.com/default.asp?language=English&page=Investor.
25. Saloojee Y, Dagli E. Tobacco industry tactics for resisting public policy on health. Bulletin of the World Health
Organization. 2001 July;78(7):902-10.
26. Indonesian Cigarette Manufactures Association (GAPPRI). Position paper on the proposed Framework Convention on
Tobacco Control of the World Health Organization. WHO; 2000. Available from:
http://whqlibdoc.who.int/mnh/tobac_conv/F4690462.pdf.
27. Special report: Who's trying to kill the tobacco bill? : The Jakarta Post; 2009 August 5; Available from:
http://www.thejakartapost.com/news/2009/08/05/special-report-who039s-trying-kill-tobacco-bill.html.
28. Smoker's paradise. Asia Sentinel; 2007 January 22; Available from:
http://www.asiasentinel.com/index.php?Itemid=226&id=350&option=com_content&task=view.
29. Ghabo.com. Gabungan producen rokok putih Indonesai (GAPRINO). [cited 2009 August 19]; Available from:
http://www.ghabo.com/gpedia/index.php/GABUNGAN_PRODUSEN_ROKOK_PUTIH_INDONESIA_(GAPRINDO)
30. Wasono H. Gudang Garam involved in smoking regulations. 2009 February 10; Available from:
http://www.tempointeractive.com/hg/nasional/2009/02/10/brk,20090210-159431,uk.html.
31. Achadi A, Soerojo W, Barber S. The relevance and prospects of advancing tobacco control in Indonesia. Health Policy.
2005 Jun;72(3):333-49.
32. Shafey O, Eriksen MP, Ross H, Mackay J. The tobacco atlas, 3rd edition. Atlanta, Georgia: American Cancer Society;
2009.
6
Indonesia
Status Kebijakan Tembakau
Indonesia adalah satu-satunya negara anggota WHO di Asia Tenggara yang belum meratifikasi Konvensi Kerangka Kerja Pengendalian Tembakau
(Framework Convention on Tobacco Control). Undang-undang kesehatan nasional tahun 2009 menetapkan tembakau sebagai zat adiktif.
LINGKUNGAN BEBAS ASAP ROKOK: Undang-undang kesehatan nasional melarang merokok di angkutan umum, fasilitas pelayanan kesehatan, fasilitas
pendidikan, tempat bermain anak dan tempat ibadah. Di tempat umum dan tempat kerja lainnya, area khusus merokok mungkin disediakan. Namun, di
bawah undang-undang Indonesia, pemerintah daerah juga harus mengeluarkan peraturan pelaksanaan terkait agar ketentuan bebas asap rokok dari
undang-undang kesehatan nasional dapat diberlakukan. Undang-undang nasional tidak menetapkan tenggat waktu yang harus dipenuhi oleh pemerintah
daerah dalam mengambil tindakan, dan sebagian pemerintah daerah telah mengeluarkan peraturan, sementara yang lainnya masih belum.
LARANGAN IKLAN, PROMOSI DAN SPONSOR: Iklan, promosi dan sponsor tembakau di Indonesia umumnya diperbolehkan, dengan beberapa pembatasan.
Namun, iklan di media cetak dan siaran tidak boleh menampilkan rokok, bungkus rokok atau penggunaan rokok atau tembakau. Iklan tembakau di TV dan
radio hanya diperbolehkan dari pukul 21:30 hingga 05:00 waktu setempat.
PERINGATAN KESEHATAN PADA KEMASAN TEMBAKAU: Peraturan yang berlaku saat ini mewajibkan satu peringatan teks (“merokok dapat menyebabkan
kanker, serangan jantung, impotensi dan gangguan kehamilan dan janin”) pada semua kemasan produk tembakau hisap. Peringatan tersebut harus
ditampilkan pada satu area tampilan utama, yang dalam praktiknya ditempatkan di bagian belakang kemasan. Peringatan kesehatan tidak diwajibkan pada
kemasan produk tembakau nirasap.
PAJAK DAN HARGA TEMBAKAU: Harga tembakau di Indonesia tidak mahal, dan tarif pajak juga rendah dibandingkan dengan negara-negara lain di kawasan
ini. Pajak tembakau di Indonesia berada di bawah rekomendasi Bank Dunia yang menyatakan bahwa pajak tembakau adalah dua pertiga hingga empat
perlima dari harga ritel.
Kebijakan Pengendalian Tembakau
LINGKUNGAN BEBAS ASAP ROKOK – LARANGAN TOTAL MEROKOK 1
Fasilitas pelayanan kesehatan
Tidak Perkantoran dalam ruang
Fasilitas pendidikan, kecuali universitas
Tidak Angkutan umum
Universitas
Tidak Restoran
Fasilitas pemerintahan
Tidak Pub dan bar
Apakah pemerintah daerah memiliki kewenangan untuk menerapkan undang-undang yang sepenuhnya melarang
merokok tembakau?
LARANGAN IKLAN, PROMOSI DAN SPONSOR
TV dan radio nasional
TV dan radio internasional
Majalah/surat kabar lokal
Tidak
Tidak
Tidak
Majalah/surat kabar internasional
Tidak
Papan reklame dan iklan luar ruang
Tempat penjualan
Internet
Tidak
Tidak
Tidak
PERINGATAN KESEHATAN PADA KEMASAN TEMBAKAU
Undang-undang mewajibkan peringatan tertentu
Ya
Peringatan menjelaskan dampak berbahaya dari
Ya
penggunaan tembakau
Peringatan menyertakan gambar atau grafik
Tidak
% area tampilan utama yang tercakup (depan dan
0%
belakang)
Depan
0%
Belakang
0%
PAJAK DAN HARGA TEMBAKAU
HARGA MEREK YANG PALING BANYAK TERJUAL, BUNGKUSAN
20 BATANG ROKOK
Dalam mata uang yang dilaporkan
IDR
13.125,00
negara
Dalam USD dengan nilai tukar resmi
USD
1,47
Distribusi gratis
Diskon promosi
Produk non-tembakau dengan nama tembakau
Merek non-tembakau digunakan untuk produk
tembakau
Kemunculan produk tembakau di TV dan/atau film
Acara bersponsor
Jumlah peringatan yang disetujui
Peringatan harus dirotasi
Peringatan ditulis dengan bahasa utama
Peringatan mewajibkan gaya huruf, ukuran huruf dan
warna
Larangan terhadap deskriptor yang menyesatkan
Tidak
Tidak
Tidak
Tidak
Ya
Ya
Tidak
Tidak
Tidak
Ya 2
Tidak
1
Tidak
Ya
Ya 3
Tidak
PAJAK ATAS MEREK YANG PALING BANYAK TERJUAL (%
DARI HARGA RITEL)*
Total pajak
Total cukai (spesifik dan ad valorem)
Pajak Pertambahan Nilai (PPN)
* Penjumlahan kategori pajak individual mungkin tidak sama dengan jumlah total akibat pembulatan
54%
46%
8%
Sumber:
Laporan WHO tentang Epidemi Tembakau Global 2011 tersedia di: http://who.int/tobacco
1
Peraturan Pemerintah Republik Indonesia No. 19 Tahun 2003 tentang Pengamanan Rokok bagi Kesehatan, pasal 22 dan 23. Undang-Undang No. 36 Tahun 2009 tentang
Kesehatan, Pasal 115.
2
Peraturan Pemerintah Republik Indonesia No. 19 Tahun 2003 tentang Pengamanan Rokok bagi Kesehatan, Pasal 17.
3
Peraturan Pemerintah Republik Indonesia No. 81 Tahun 1999 tentang Pengamanan Rokok bagi Kesehatan, Pasal 9.
Desember 2011
Indonesia
Tobacco Policy Status
Indonesia is the only WHO member state in Southeast Asia that has not ratified the Framework Convention on Tobacco Control. A 2009 national
health law designates tobacco as an addictive substance.
SMOKE-FREE ENVIRONMENTS: The national health law prohibits smoking on public transport, in health care facilities, educational facilities,
children’s playgrounds, and religious places. In other types of public places and in workplaces, designated smoking areas may be provided.
However, under Indonesian law, local governments must also pass corresponding implementing legislation in order for the national health law’s
smoke-free provisions to take effect. The national law does not set a deadline by which local governments must act, and some local governments
have passed legislation while others have not.
BANS ON ADVERTISING, PROMOTION AND SPONSORSHIP: Tobacco advertising, promotion and sponsorship is generally allowed in Indonesia,
with a few restrictions. However, broadcast and written media advertisements may not show cigarettes, cigarette packs, or the use of cigarettes
or tobacco. Tobacco advertising on TV and radio is restricted to the hours between 21:30 and 05:00 local time.
HEALTH WARNINGS ON TOBACCO PACKAGES: The current regulations require one text warning (“smoking can cause cancer, heart attacks,
impotence, and disturbances to pregnancy and fetal development”) on all smokeable tobacco product packages. The warning must be displayed
on one principle display area, which in practice is the back of the package. Health warnings are not required on smokeless tobacco product
packages.
TOBACCO TAXATION AND PRICES: Tobacco is inexpensive in Indonesia, and tax rates are low compared to other countries in the region. Tobacco
taxes in Indonesia fall below the World Bank’s recommendation that tobacco taxes make up two-thirds to four-fifths of retail price.
Tobacco Control Policies
SMOKE-FREE ENVIRONMENTS – COMPLETE SMOKING BANS 1
Health-care facilities
No Indoor offices
Educational facilities, except universities
No Public transport
Universities
No Restaurants
Governmental facilities
No Pubs and bars
Do sub-national jurisdictions have the authority to adopt laws that completely ban tobacco smoking?
BANS ON ADVERTISING, PROMOTION AND SPONSORSHIP
National TV and radio
No
No
Local magazines/newspapers
No
International magazines/newspapers
No
Billboards and outdoor advertising
No
Point-of-sale
No
Internet
No
HEALTH WARNINGS ON TOBACCO PACKAGES
Law mandates specific warnings
Warnings describe harmful effects of tobacco use
Warnings include a picture or graphic
% of principal display areas covered (front and back)
Front
Back
Yes
No
No
No
No
Yes
Free distribution
Yes
Promotional discounts
No
Non-tobacco products with tobacco names
No
Non-tobacco brand used for tobacco product
No
Appearance of tobacco products in TV and/or films
Sponsored events
Number of approved warnings
Yes 2
No
1
Yes
Warnings required to rotate
No
No
Warnings are written in the principal language(s)
Yes
0%
Warnings have mandated font style, font size and color
0%
Ban on misleading descriptors
Yes 3
No
0%
TOBACCO TAXATION AND PRICE
PRICE OF MOST SOLD BRAND, PACK OF 20 CIGARETTES
IDR
13 125.00
USD
1.47
TAXES ON MOST SOLD BRAND (% OF RETAIL PRICE)*
Total taxes
Total excise (specific and ad valorem)
Value added tax (VAT)
54%
46%
8%
* Individual categories of tax may not add to total due to rounding
Sources:
WHO Report on the Global Tobacco Epidemic 2011 available from: http://who.int/tobacco
1
Government Regulation of the Republic of Indonesia No. 19 of 2003 Concerning Safety Measures for Smoking and Health, para. 22 and 23. Law No. 36 of 2009
Concerning Health, Art. 115.
2
Government Regulation of the Republic of Indonesia No. 19 of 2003 Concerning Safety Measures for Smoking and Health, Art. 17.
3
Government Regulation of the Republic of Indonesia No. 81 of 1999 Regarding Pacification of Cigarettes for Health, Art. 9.
December 2011
INDONESIA
FAKTA BEBAN TEMBAKAU
Indonesia belum meratifikasi Konvensi Kerangka Kerja Pengendalian Tembakau.
Prevalensi merokok di
Indonesia (2004)1
KONSUMSI
100%
PERSENTASE PEROKOK
• Terdapat sekitar 57 juta perokok di Indonesia.1
34%
total populasi
63%
• Sepertiga (34%) dari orang Indonesia merokok, kenaikan sebesar 26% sejak
tahun 1995.2
• 63% pria merokok. Kendati tingkat wanita yang merokok rendah (5%), angka ini
diperkirakan akan meningkat.3
pria dewasa
5%
wanita dewasa
Penggunaan tembakau di kalangan
kawula muda (usia 13–15 tahun)
di Indonesia (2006)3
30
Penggunaan tembakau sedang meningkat di Indonesia.
PERSENTASE PENGGUNA TEMBAKAU
rokok hisap
produk tembakau lainnya
25
• Di kalangan anak muda (usia 13–15 tahun), 12% menghisap rokok (remaja putra
24%; remaja putri 2%).4
• 78% perokok mulai merokok sebelum usia 19 tahun,5 dan sepertiga pelajar
melaporkan mencoba rokok pertama mereka sebelum usia 10 tahun.6
• Sebagian besar perokok di Indonesia (88%) menggunakan rokok krekek bercita
rasa cengkih.
KONSEKUENSI KESEHATAN
Penggunaan tembakau itu mematikan. Merokok membunuh hingga separuh dari
seluruh pengguna seumur hidup.8
20
• Di Indonesia, merokok membunuh setidaknya 200.000 orang setiap tahunnya.9
15
10
• Lebih dari 97 juta orang Indonesia yang tidak merokok secara reguler terpapar
asap bekas.10
5
• 81% anak muda (usia 13–15 tahun) terpapar asap bekas di tempat umum, dan
65% anak muda terpapar asap bekas di rumah.1
0
total
remaja
putra
remaja
putri
BIAYA PADA MASYARAKAT
Tembakau menuntut biaya tinggi dari masyarakat.
Penghasilan yang dibelanjakan menurut
kategori dalam rumah tangga
dengan perokok di Indonesia (2005)1
produk
tembakau
11.5%
ikan, daging,
telur dan susu
11%
pendidikan
3.2%
kesehatan
2.3%
lain-lain
72%
• Di Indonesia, biaya perawatan kesehatan akibat penyakit terkait tembakau
mencapai 11 triliun rupiah setiap tahunnya (1,2 miliar USD).12
• Peluang ekonomi yang hilang di negara-negara berkembang dengan populasi
padat sangatlah parah karena separuh dari seluruh kematian terkait tembakau
terjadi selama masa produktif utama (30–69 tahun).13
• Pada tahun 2005, rumah tangga dengan perokok di Indonesia menghabiskan
11,5% penghasilan rumah tangganya untuk produk tembakau dibandingkan
dengan 11% yang dibelanjakan untuk ikan, daging, telur dan susu dijumlahkan,
3,2% untuk pendidikan dan 2,3% untuk kesehatan.14
• Merokok juga mengakibatkan timbulnya biaya yang terkait dengan kerusakan
akibat kebakaran dan rusaknya lingkungan hidup dari produksi dan kemasan
produk tembakau.
1. Barber S, Adioetomo SM, Ahsan A, Setynoaluri D. Tobacco economics in Indonesia. Paris: International Union Against Tuberculosis and Lung Disease; 2008. 2,3. Republic of Indonesia Ministry of Health (Indonesia
MOH). The tobacco source book: data to support a national tobacco control strategy. Jakarta: Indonesia MOH; 2004. 4. Global Youth Tobacco Survey (GYTS) [database on the Internet]. Indonesia – National 2006.
Atlanta: Centers for Disease Control and Prevention. c2009 [cited 2009 July 21]. Available from: http://apps.nccd.cdc.gov/OSH_GTSS/default/Default.aspx. 5. Barber S, 2008. 6. Aditama T, Pradono J, Rahman K,
Warren C, Jones NR, Asma S, Lee J. Global Youth Tobacco Survey (GYTS) in Indonesia. Preventive Medicine. 2008; 47:S11-S14. 7. Barber S, 2008. 8. Mackay J, Eriksen M, Shafey O. The Tobacco Atlas. 2nd ed.
Atlanta: American Cancer Society; 2006. 9. Barber S, 2008. 10. Indonesia MOH, 2004. 11. Pradono K. Passive Smokers, the forgotten disaster. Institute of Health Research and Development. Jakarta: Ministry of
Health, Republic of Indonesia; 2002. 12. Barber S, 2008. 13. Mackay J, 2006. 14. Barber S, 2008.
Indonesia: Beban tembakau
October 2011
www.tobaccofreecenter.org
INDONESIA
TOBACCO BURDEN FACTS
Indonesia has not ratified the Framework Convention on Tobacco Control.
CONSUMPTION
Tobacco use is rising in Indonesia.
• There are approximately 57 million
smokers in Indonesia.1
• One-third (34%) of Indonesians
smoke, an increase of 26% since
1995.2 • 63% of males smoke. While female
rates are low (5%), they are expected
to rise.3
• Among youth (age 13-15), 12% smoke cigarettes (boys 24%;
girls 2%).4 • 78% of smokers start before age 19,5 and one-third of students report trying
their first cigarette before the age of
10.6 • The majority of smokers in Indonesia
(88%) use kreteks, clove flavored
cigarettes.7
HEALTH CONSEQUENCES
Tobacco use is deadly. Smoking kills up to half of all lifetime users.8
• In Indonesia, smoking kills at least
200,000 people annually.9
• More than 97 million Indonesian non-smokers are regularly exposed to secondhand smoke.10
• 81% of youth (age 13-15) are
exposed to secondhand smoke in
public places, and 65% of youth are
exposed to secondhand smoke at
home.11
COSTS TO SOCIETY
Tobacco exacts a high cost on society.
• In Indonesia, healthcare costs
attributed to tobacco-related illnesses
amount to 11 trillion IDR each year
(1.2 billion USD).12
• Lost economic opportunities in highly
populated, developing countries are
severe because half of all tobaccorelated deaths occur during the prime
productive years (30-69 years).13
• In 2005, Indonesian households
with smokers spent 11.5% of their
household income on tobacco
products compared to 11% spent on
fish, meat, eggs and milk combined,
3.2% on education and 2.3% on
health.14 • Smoking also results in costs
associated with fire damage and
damage to the environment from
the manufacturing and packaging of
tobacco products.
1. Barber S, Adioetomo SM, Ahsan A, Setynoaluri D. Tobacco economics in Indonesia. Paris: International Union Against Tuberculosis and Lung Disease; 2008. 2,3. Republic of Indonesia Ministry of Health (Indonesia MOH). The tobacco source book:
data to support a national tobacco control strategy. Jakarta: Indonesia MOH; 2004. 4. Global Youth Tobacco Survey (GYTS)
[database on the Internet]. Indonesia - National 2006. Atlanta: Centers for Disease Control and Prevention. c2009 [cited 2009
July 21]. Available from: http://apps.nccd.cdc.gov/OSH_GTSS/default/Default.aspx. 5. Barber S, 2008. 6. Aditama T, Pradono
J, Rahman K, Warren C, Jones NR, Asma S, Lee J. Global Youth Tobacco Survey (GYTS) in Indonesia. Preventive Medicine.
2008; 47:S11-S14. 7. Barber S, 2008. 8. Mackay J, Eriksen M, Shafey O. The Tobacco Atlas. 2nd ed. Atlanta: American
Cancer Society; 2006. 9. Barber S, 2008. 10. Indonesia MOH, 2004. 11. Pradono K. Passive Smokers, the forgotten disaster.
Institute of Health Research and Development. Jakarta: Ministry of Health, Republic of Indonesia; 2002. 12. Barber S, 2008.
13. Mackay J, 2006. 14. Barber S, 2008.
Indonesia: Tobacco burden
April 2010
www.tobaccofreecenter.org
Tobacco Industry Profile – Indonesia
(August 2009)
Intended Uses of Report
This document is intended as background information for developing presentations, educational
and training materials, and for use in media messaging. We suggest that you copy directly from
this document to materials that you are developing (be sure to maintain citations). You are
encouraged to add relevant local information so that you have ready facts for these purposes.
We recognize that Indonesia has not yet ratified the World Health Organization’s Framework
Convention on Tobacco Control (FCTC). However, the FCTC provides sound framework for
achieving reductions in tobacco use. One of its guiding principles is that participation of civil
society is essential in achieving the policy objectives contained within the Convention. 1 The
FCTC also recognizes that “there is a fundamental and irreconcilable conflict between the
tobacco industry’s interests and public health policy interests.” 2 Civil society can play an
essential role in raising awareness about the tobacco industry – its goals, its size and operation,
its strategies to promote its products, and to thwart the adoption and implementation of strong
policies by gaining influence and credibility with policy makers and the public at large.
Accordingly, advocates should educate policy makers about the tobacco industry and its deadly
products in their campaigns to achieve priority policy initiatives contained within the FCTC.
Evidence from Section 4 (Tobacco Industry Promotions and Sponsorships) of this report can be
used to support comprehensive bans on all tobacco advertising, promotion, and sponsorships as
specified in FCTC Article 13 and its guidelines. Section 5 (Corporate Social Responsibility) can
also be used to support alignment with FCTC Article 5.3 guidelines to calling for the
denormalization and regulation of purported “socially responsible” activities carried out by the
tobacco industry. We suggest that you add examples to these Sections of the report as you find
them to ensure that you have a ready resource to access as the need for this type of information
arises in your policy campaigns.
Table of Contents
1)
2)
3)
4)
5)
6)
Introduction
Overview of the Tobacco Industry in Indonesia
Popular Brands in Indonesia
Tobacco Industry Promotions and Sponsorships
Corporate Social Responsibility
Appendix A: Company Executives and Contact Information
1. Introduction
The tobacco industry is one of the most profitable industries in the world. To market its deadly
products, tobacco companies use its enormous wealth and influence locally and globally. Even as
advocacy groups and policy makers work to combat the tobacco industry’s influence, new and
manipulative tactics are used by tobacco companies and their allies to avoid or weaken tobacco
control efforts. It is important for tobacco control advocates to know which companies are
© Campaign for Tobacco-Free Kids, August 2009
1
present, how and where they operate, the types and quantity of product sold and marketing
tactics used to sell tobacco products. By being informed about all aspects of the tobacco industry
within a country, advocates are better equipped to fight the tobacco industry and its allies on
multiple levels.
It is important to note that the tobacco companies typically report market data annually at least
several months after the end of the fiscal year. By its nature, market data reported by analysts
and tobacco companies are one or two years old. Thus, general trends, forecast data, and tobacco
industry positioning within the market contained here is the most recent we are able to obtain
from tobacco analysts, Euromonitor International, and other sources.
Further, market data on kretek cigarette manufacturing and sales in Indonesia may be incomplete
in this report because industry analysts often only report market data on machine-rolled products.
Therefore, data does not always include hand-rolled kreteks, which represents a large segment of
kretek sales. Where possible, we have included information about hand-rolled kreteks, but
information on this segment of the kretek market remains scarce.
2. Overview of the Tobacco Industry in Indonesia
Indonesia has a unique market because the majority of smokers in Indonesia (92%) use kreteks, 3
which are traditional cigarettes made from tobacco, clove buds and flavoring “sauces” and are
either hand-rolled or machine-rolled into conventional cigarette form. Kreteks contain tobacco
and, therefore, all of the same deadly health harms caused by conventional white cigarettes apply
to kreteks. Additionally, cloves and chemical additives in a kretek’s flavoring “sauce” contain at
least three additional toxic chemical compounds and, thus, additional associated health risks. 4
Kreteks comprise such a large portion of the Indonesian market that in general the term
“cigarettes” refers to them and other manufactured cigarettes that do not contain clove buds and
flavoring “sauces” are referred to as “white cigarettes.” Currently, the sale of machine-rolled
kreteks is on the rise. 5 In 2006, approximately 56% of kretek cigarettes were machine-rolled and
an estimated 35% were hand-rolled. 6
Indonesia is the world’s fifth largest tobacco market by volume. 7 Retail volume sales have
increased by over 25% (26.4%) in the last ten years from 132.6 billion sticks in 1998 to 167.6
billion sticks in 2008 (does not include hand-rolled kretek growth). 8 The market leaders in
Indonesia include both transnational and locally owned tobacco companies.
2
Market Shares* of the Leading Tobacco Companies in Indonesia, September 2008 9
*
Includes hand-rolled, machine-rolled and white cigarettes
Note: Philip Morris International (PMI) became the major shareowner of Sampoerna in 2005 and British American
Tobacco (BAT) acquired a majority share in Bentoel in 2009.
Transnational Tobacco Companies (TTCs) in Indonesia
The two largest non-governmental-owned transnational tobacco companies (TTCs)– Philip
Morris International (PMI) and British American Tobacco (BAT) - operate in Indonesia; selling
both kreteks and white cigarettes. The powerful presence and nature of these TTCs further
threaten public health because the companies’ competitive efforts to reach young consumers and
female smokers ultimately increase smoking prevalence in markets where TTCs operate. 10
o The TTCs use their immense economic and political influence to weaken tobacco control
policies globally. 11
o As TTCs gain control of emerging markets like Indonesia, they drive down cigarette
prices and raise advertising and promotional spending, which in turn increases the rate of
consumption in a country. 12
o Even in the current global financial crisis, the TTCs are considered by analysts as
generally recession-resilient, 13 enabling the companies to continue their competition for a
larger share in emerging markets such as Indonesia.
o The TTCs can increase profits by streamlining manufacturing, distribution, and
marketing processes, which can reduce unit costs for a cigarette, 14 especially where incountry manufacturing allows access to cheaper labor and transportation costs. 15
Recently, both PMI and BAT have increased their operations in Indonesia by acquiring
local tobacco companies.
In 2005 PMI became the major share holder of PT HM Sampoerna Tbk
(Sampoerna).
In June 2009 BAT bought a controlling stake in Bentoel Internasional
Investama Tbk (Bentoel).
Philip Morris International
3
•
•
•
In just three years after PMI acquired Sampoerna in Indonesia in 2005, the TTC has
overtaken the previous market leader Gudang Garam Tbk PT, a domestic Indonesian
company, in terms of sales and profits, and now has the largest market share. 16
o PMI has achieved a 28% increase in sales by volume of white cigarettes and
machine made kreteks from 29.6 billion sticks in 2005 to 37.9 billion sticks in
2008. 17
o PMI’s share of the hand-rolled kretek segment also grew from 32.8 billion sticks
in 2007 to 33.2 billion sticks in 2008 (a 1.3% volume increase.) 18
In 2008, a Euromonitor International report placed Indonesia as PMI’s 4th largest market.
The country is considered an emerging market specifically targeted by PMI to improve
the growth of the company. 19
PMI operates in Indonesia through two companies
o PT HM Sampoerna Tbk. In 2005, PMI became the majority shareholder
(97.95%) in Sampoerna, which operates five cigarette manufacturing facilities in
Indonesia, the biggest of which is Pandann, East Java. 20 In 2008, a new
manufacturing facility in Karawang, West Java was completed. 21
Sampoerna owns Alfamart mini-mart chain of about 1000 stores that
offers PMI the opportunity to increase marketing and sales of its
products. 22
o Philip Morris Indonesia was established in 1998 with the takeover of a
production facility in East Java. 23
Philip Morris Indonesia makes all of PMI’s white cigarettes sold in
country, including segment leader Marlboro brand cigarettes which sold
10.9 billion sticks in 2008. 24
British American Tobacco
• BAT operates in Indonesia through two companies
o PT Bentoel Internasional Investama Tbk:
In June 2009, BAT acquired control (85% share) of Bentoel, which, in
addition to being a leading cigarette manufacturer, is also a holding
company for other businesses including trading, industrial manufacturing,
constructions and development services, and owns a recreational park. 25
• BAT reported that its June 2009 purchase of Bentoel represents
“an excellent strategic opportunity to enter the very large and
growing Indonesian kretek market and will provide a platform for
future growth.” 26
• Regarding BAT’s purchase of Bentoel, an article in the tobacco
industry trade press noted that the acquisition will “help BAT. . .
expand in a country where there are few limits on advertising and
no restrictions on sales to minors as anti-smoking rules get stricter
in Europe and the U.S.” 27
• By September 2009, BAT bought the remaining public shares in
Bentoel bringing their total ownership of the company to
99.74%. 28
Over ten years ago, BAT sought to develop a kretek-like product in
Indonesia that contained levels of eugenol (a product of cloves) that
exceeded international guidelines for eugenol uptake. 29 At that time, the
4
company chose not to bring such a product to market due to the bad
publicity it might experience from marketing a product in Indonesia that it
could not sell in other countries. With the purchase of Bentoel in 2009,
however, BAT now owns at least 8 kretek brands that contain eugenol.
In 2007, Bentoel sold 15.1 billion sticks: 39% hand-rolled kreteks, 45%
machine-rolled kreteks and 16% white cigarettes. 30
In 2007, the hand-rolled (SKT) kretek segment represented the largest
growth from 2006 (89% increase in volume sales) primarily through its
Sejati brand. 31
o PT BAT Indonesia Tbk
BAT sells white cigarettes (2% market share in 2008 32 ) and roll-your-own
tobacco products (20% market share in 2008 33 ) in Indonesia through BAT
Indonesia. In 2007, BAT Indonesia produced about 5 billion white
cigarettes. 34
BAT reported to investors that its main market goal in 2008 was to
promote its Global Drive Brands (GDB) Lucky Strike, Kent, Pall Mall and
Dunhill. In BAT’s Asia Pacific region, cigarette volumes increased by 5%
from 2007 to 2008 (153 billion sticks). Lucky Strike was reported to be
particularly strong in the Indonesian market in 2008. 35
According to Euromonitor International, BAT’s marketing strategy in
Indonesia is to “suggest that its white cigarette brands are crafted with
superior quality”, however, the company “faces the challenge of
cultivating society to take up smoking white cigarettes in a kretek
dominated culture.” 36
Locally Owned Tobacco Companies in Indonesia
It is estimated that over 5000 different local cigarette manufacturers operate in Indonesia. 37
Local companies in Indonesia have, until recently, stymied the growth of TTCs due to their
status as cultural symbols and their ability to protect their interests politically. 38 One TTC
executive explained that Indonesia is a unique market in part because of “the fact that tiny
factories can compete in the same market as huge multinationals.” 39 The two largest domestic
companies are Gudang Garam established in 1958 and Djarum established in 1951, both run by
two of the richest families in Indonesia. 40
Gudang Garam Tbk PT
• Gudang Garam Tbk PT is the world’s largest kretek producer. However, Gudang Garam
lost significant market share from 2005-2007 (25% decrease) due to its 2006 focus on
rural areas with hand-rolled kreteks where consumer purchasing power is low. 41
o In 2008 Gudang Garam share started to bounce back and the company reported an
8.29% increase in sales in November 2008 compared to the previous year. 42
• In an effort to increase its market share, in 2007 Gudang Garam launched a slim kretek
Gudang Garum Surya Slims, maintained music and sporting sponsorships, television and
outdoor advertising campaigns for other leading brands such as Merah, Surya 16, and
International. 43
Djarum PT
5
•
•
•
•
Djarum PT is a privately owned company headed by the Hartono family. Because
Djarum is not a publicly traded company, accessing its financial reports is difficult.
In addition to kreteks, Djarum manufactures cigarillos and cigars in Indonesia and in
2008 held 52% and 11% respectively of the total market volume. 44
Djarum PT’s flagship brand, Djarum Super, sold locally and exported globally, is
aggressively marketed through soccer and music sponsorship.
o Djarum exports kreteks globally; the company owns and operates a factory in
Brazil that supplies the South American market. 45
Djarum PT was the first kretek manufacturer to market flavored and “mild” kreteks. 46
3. Popular Cigarette Brands in Indonesia
The tobacco industry aggressively advertises its brands in order to attract new smokers and to
encourage current smokers to switch brands. In Indonesia, cigarette firms spend an estimate $196
million USD annually. 47 Currently, the industry is focusing on promoting flavored products
(menthol, cappuccino, etc.) as well as low tar, low nicotine kretek brands. It is important to note
though that “light” and “mild” kreteks still have a high-tar content (12-15mg) relative to other
low tar products 48 (Euromonitor International classifies low tar products as those under 6mg).
Additionally, there is no “safe” cigarette.
• In 2008, Gudang Garum had the largest market share of machine made kreteks/cigarettes in
Indonesia (28%) followed by A Mild (15%) and Djarum (9%) respectively.
• In 2007, PMI and Sampoerna collaborated to produce Marlboro Mix 9 (Marlboro kreteks), in
order to familiarize consumers with the international Marlboro brand. 49
Popular Brands by Company and Type1
Company
Hand-rolled Kreteks
PMI/Sampoerna Sampoerna A Hjau. Dji Sam
Soe, Panamas Kuning
BAT/ Bentoel
Internasional
Investama
Rawit, Prinsip Sejati
Gudang Garam
GG Merah King Size, GG
Special de Luxw, GG Djaja,
GG Tanda Mata, Sigaret
Kretek Klobot Manis
Djarum 76, Dajarum Coklat,
Djarum Istimewa
Djarum
1
Machine-rolled Kreteks
A Mild (2), U Mild (9),
Avolution, Marlboro Mix 9,
Dji Sam Soe Filter
X Mild (7), Club Mild (8),
Star Milds, Bethoel Biru,
One Milds, Tali Jagat Filter
and Ray
GG Filter International
Merah (1), GG Filter Surya,
GG Filter International
Coklat
Djarum Super(3), Djarum
Black, Tea and Cappucino,
LA Lights (6)
White Cigarettes
Marlboro (4), Philip
Morris
Country(10), Lucky
Strike, Pall Mall,
Adrath, Dunhill,
Kansas, Commfil
Numbers refer to the brand’s market position by retail volume in 2008 (©2009 Euromonitor International)
The majority of smokers in Indonesia are men. The act of smoking among men is so ingrained in
the Indonesian culture that many of the tobacco products on the market target men specifically
using images of nationalism, adventure and masculinity. 50
edition
• In March 2009, Philip Morris Indonesia launched the limited
Marlboro Black Menthol, a premium black packaging
targeting young adult males. 51
6
• Indonesia’s leading local white cigarette, Country is aimed at “middle
class young adult men” and is promoted as “a symbol of masculinity visualized
through adventure.” Advertisements for Country cigarettes include extreme
sports such as rock climbing and mountain biking. 52
• Bentoel Biru brand was launched in 2007 with hologramed packaging and
was promoted to “reward. . . its targets by providing the sense of pride as being
present in Indonesian men.” 53
• GG Filter International Merah is the top-selling filter kretek, which is
“made for men having a tough personality, modern style and good appreciation of
the real art of smoking.” 54
While women make up a smaller portion of the cigarette smoking population, Euromonitor
International notes that their numbers are growing, particularly among working women in urban
areas. 55 In an effort to attract female smokers, tobacco companies have expanded into the slim
cigarette market.
• In February 2008 Sampoerna launched A Volution, a super-slim cigarette with packaging
that looks like a tube of lipstick.
o “A Volution is the first super slims kretek cigarette in Indonesia, an innovative
cigarette product in an attractive pack design. Distributed nationally across
Indonesia in both regular and menthol variants, A Volution’s introduction has
bolstered the overall performance of the A Mild franchise, our second-largest
brand in Asia [behind Marlboro].” 56
• GG Surya Slims brand, launched in 2007, is the company’s first
attempt at a slim cigarette marketed directly to a younger audience. 57
The shiny and elegant packaging also appeals to women. 58
• Djarum Black Slimz, a low tar, low nicotine kretek, was launched in
2008 in order to appeal to the growing “light” cigarette market in
Indonesia. The product is targeted at urban consumers. 59
Youth and lower socioeconomic groups are also targeted by brands:
• Bentoel targets lower socioeconomic groups through its hand-rolled kretek brand Sejati
by “reward[ing] its [low to middle class] target by giving the feeling of pride out of their
hard work.” 60
• Bentoel’s most popular machine-rolled kretek X Mild is marketed as a low tar, low
nicotine kretek that targets middle class young adults by “invit[ing them] to freely
express their youth. . . ” 61
• Tali Jagat Raya and Tali Jagat Filter target low to middle socioeconomic classes through
campaign messages such as “symbol of hope in surviving life by using the
spirit of togetherness” and target users for “their resilience and efforts to
make tomorrow better than today.” 62
• GG Filter Surya is marketed “to reflect the dynamic spirit of youth that is
full of enthusiasm and loves life’s challenges.” 63
• In 2006, Djarum Super launched a Limited Edition Super Soccer Series in
conjunction with the 2006 World Cup in Germany. The packs included
popular international teams and famous locations.
o More pack examples can be found here: http://www.zigsam.at/F_Intro.htm
7
4. Tobacco Industry Promotions and Sponsorships
Tobacco companies sponsor parties, concerts, sports teams, and sporting events that deceptively
associate tobacco with desirable places, situations or physical qualities. This tactic weakens tobacco
control efforts, because tobacco companies can continue publicizing their products in the presence of
existing bans on direct advertising 64 and advertise their products with no requirement for
accompanying health warnings. 65 Examples of strategic promotions and sponsorships include music
and concert events, sports sponsorships, and arts and cultural events. The Indonesian culture is
saturated with tobacco industry advertisements and sponsorships. One recent study found that
between January and October 2007, 1350 events sponsored by the industry took place in Indonesiathat averages out to be 135 events each month. 66
Recent Examples of Sponsorships:
o Concert Sponsorships
A Mild Live Wanted 2009 is a Music talent
search that allows local bands to break into the
Indonesia music scene. Past winners include:
D’Masiv and X-Po.
The Java Jazz music festival (March 2009) is an
international festival that included acts from the
US. Sampoerna’s Dji Sam Soe brand continued
to sponsor the event in 2009 but was not named
on promotional tools as it was in previous years.
Local A Mild Live Wanted performance Marlboro Rock in Orchestra featuring Slank.
National Commission on Child Protection,
2009
• Series of concerts from Nov 2008- Jan
2009.
Alicia Keys Concert (July 2008) Sponsored by A Mild Live.
• Alicia Keys successfully demanded the removal of tobacco
sponsorship from the event.
Bentoel has sponsored music concerts including the internationally known
pop group The Cranberries and reggae music artist Shaggy. Star Mild Music
promotes local and regional artists and the One Mild acoustic music festival was a 3
day event in May, 2009.
LA Lights Concerts sponsors local and international artists including the
UK metalcore band, Bullet for My Valentine in 2009.
Djarum sponsors new music podcasts. http://www.equinoxdmd.com/podcast.html
o Sports Sponsorships

Copa Dji Sam Soe- Soccer tournament for the elite teams in Indonesia
(Nov 2008- June 2009).

2009 Sampoerna Hijau Voli Prolig (Jan- March 2009)- Volleyball
tournament.

Since 2002, Bentoel has managed Arema Malang Football Club (FC
Arema), which won the Copa Indonesia in 2005. On its corporate
website, Bentoel states: “Just as the clove cigarette tradition, football
is also a deeply cherished pastime activity among Indonesians.” 67

Bentoel brands sponsor various motorsport competitions including drag racing (Star
Mild Machine Madness, 2008) and motorcycle racing (One Mild’s, One Race for
8

One Freedom, 2009) as well as pool competitions (Country Presents 9 ball open
tournament, 2009). 68
Gudang Garam International Rally Indonesia race from 2001 to 2008 (part of the
Asia Pacific Rally Championship series).
Djarum Super is a very recognizable name sponsoring the Indonesian premier
soccer league and various other sporting and music events in Indonesia.
Screen shot from the Djarum Super website (July 6, 2009) http://www.djarumsuper.com/index.php?vpage=1_6
4. Corporate Social Responsibility (CSR)
Tobacco companies maintain CSR programs in an effort to counter negative attention regarding
their deadly business. By donating funds to noble causes, the perception of tobacco companies
by the public and policy makers improves. The true goals of industry-sponsored programs have
been revealed through internal tobacco industry memos released to the public by U.S. legal
settlements. CSR programs: 69
• Serve the industry’s political interests by preventing effective tobacco control legislation.
• Marginalize public health advocates.
• Preserve the industry’s access to youth.
• Create allies and preserve influence for the industry among policymaking and regulatory
bodies.
• Defuse opposition from parents and educators.
• Bolster industry credibility.
Examples of CSR Public Relations Activities in Indonesia
• TTC’s donate vast amounts of money to charity organizations, disaster relief efforts and
educational programs among other activities in an effort to create positive brand
recognition. 70
• In 2008, PMI donated approximately $5.1 million USD to charities in Indonesia. 99% of
the money was funneled through the Putera Sampoerna Foundation for education
projects. 71
o The Sampoerna Foundation (SF) was established in 2001 by Putera Sampoerna
and his tobacco company. Since 2005, Putera Sampoerna has operated the
foundation under the Sampoerna Group. 72
o Sampoerna gives a maximum of 2% of its net income each year and is one of the
largest contributors to the Foundation. 73
PMI Charitable giving in Indonesia
9
Organization
Putera Sampoerna
Foundation
Putera Sampoerna
Foundation
Jakarta Society for
Disabled Children
(YPAC)
Project Name
SF University Project
US$
5,000,000
Giving Area
Education
Computer Donation
Program
Medical and
Educational Facilities
Donation
89,993
Education
6,445
Education
Source: PMI 2008 charitable giving. Available from
http://www.philipmorrisinternational.com/global/downloads/CI/List%20of%20charitable%20contributions%202008
.pdf
•
•
Other PMI/ Sampoerna CSR activities
o In 2009, Sampoerna was asked by the government in East Java to help support the
region affected by the Lapindo mudflow (first eruption in May 2006 but it is an
ongoing flow that causes problems for the region) including the establishment of
business training centers, micro credit loans, and setting up supermarkets.
“Corporate Affairs Director of Sampoerna, Yos Adiguna, Ginting said his
company would set up supermarkets, such as Alfamart and Giant, and
provide assistance in the form of micro credits to SMEs [Small-medium
enterprises].” 74
In 2007, 2.5% of all cigarettes were sold in supermarkets. 75
o The Sampoerna Entrepreneurship Training Center (SETC) was established in
2006 in the Paasuran region “to develop small-medium enterprises, and to
facilitate the emergence of new businesses that can provide jobs and improve
local economies.” 76
The center trains pre-retirement employees and villagers so that they can
start their own business.
Includes programs in experimental framing and agricultural areas.
o The Sampoerna Hijau My Green City program (Anugrah Hijau) in various
Indonesian cities is a competition designed to encourage cities to improve their
environmental impact. 77
In 2007, Bentoels CSR budget was Rp10 billion ($10.7 million USD) 78 Activities listed
on its corporate website include:
o Sengkaling recreation park
Outdoor theme/water park in East Java.
Serves the “youth lifestyle market… The venue is incredibly crowded
during the weekends, as teens hang out in the café or in front of the giant
outdoor screen.” 79
o Medical and Health Services
The Bentoel Medical Center was originally established for employees and
their families but has expanded into two facilities that are open to the
public (in Tenun and Karanglo).
Full service centers including a 24hr emergency room.
o Other
10

•
Contributed to the Bali Island recovery program after the Bali terrorist
attacks in 2002.
Involved in the tsunami recovery effort in Aceh and North Sumatra in
2004.
The Bentoel Paduli Aceh organization collected money, clothes
and food and medical personnel (the Bentoel Medical Team
coordinated through the International Red Cross) to victims.
Educational scholarship program for under privileged students.
Djarum CSR activities include 80
o Environmental efforts such as the donation of mango trees to villagers in Java
(70,000 to date) which are harvested each year for Rp20-25 million, and tree
planting programs on Mount Muria to prevent soil erosion.
o Djarum supports 300 students a year with scholarships to universities and
provided technical and educational support for their tobacco farmers.
o Sports development facilities to promote and develop skills among men and
women- provides accommodations and living expenses (some Olympic medalists
have come from these programs).
o Participation in Red Cross blood drives.
11
Appendix A- Company Executives and Contact Information of the major tobacco
manufacturers in Indonesia
Philip Morris International
Matteo Pellegrini - PMI President, Asia
Region
• PT HM Sampoerna Tbk
Board of Directors
Martin Gray King- President and PMI
Senior VP, Operations
Kevin Douglas Click
Shea Lih Goh
Yos Adiguna Ginting- Director of
Corporate Affairs
Wayan Mertasana Tantra
Board of Commissioners
Angky Camaro – President (Died June
2009)
Matteo Pellegrini – Vice President
Douglas Walter Werth
Eunice Carol Hamilton
Phang Cheow Hock
Ekadharmajanto Kasih
Offices
PT HM Sampoerna Tbk
One Pacific Place, 18th Floor
Sudirman Central Business District
Jl. Jend. Sudirman Kay. 52-53
Jakarta 12190
Phone: +62 21 5151 234
Fax: +62 21 5152 234
OR: Rungkut Industri Raya Street No.
18
Surabaya,
+62-31-8431699 (Phone)
+62-31-8430986 (Fax)
Website: http://www.sampoerna.com/
•
Philip Morris Indonesia
Plaza Bapindo, Citibank Tower, 17th
Floor
Jl. Jend. Sudirman Kay. 54-55
Jakarta 12190
Phone: +62 (0)21 2551 5700
British American Tobacco
Ian Morton- President director of BAT
Indonesia operations
Board of Directors
Mirza Rehan Baig - President
Lekir Amir Daud
Harold Paul Hutabarat
James John Gregory
Djoko Moeljono - President
Subarto Zaini
Chek Kiang Foo
Rudy Rene De Ceuninck Capelle
Offices:
British American Tobacco Indonesia
Plaza Bapindo
Citibank Tower 2nd Floor
JI.Jend. Sudirman Kav. 54 - 55
Jakarta 12190
T: (+62) 21 526 8388
F: (+62) 21 526 8389
Website: http://www.bat.com/
Bentoel Internasional
Board of Directors
Nicolaas B. Tirtadinata - President
Director; CEO
Sun Alexander Yapeter - Sales and
Distribution Director; involved in
subsidiaries
Ginawati Wibowo- Marketing Director
Chrisdianto Tedjawidjaja - Director;
CFO
Heru Kuntjoro - Director; Chief
Production Officer
12
Darjoto Setyawan - President
Frans Setiawan Widjaja
Harianto Mangkusasono
Offices
Floor 23, Rajawali Tower Mega
Kuningan Street Lot# 5.1 Mega
Kuningan
Jakarta, 12950
Indonesia
+62-21-5761456 (Phone)
+62-21-5761388 (Fax)
Website: http://www.bentoel.co.id/
Kediri 64121, Indonesia
Tel : (0354) 682091
Fax : (0354) 681555
Jakarta Rep. Office
Jl. Jendral A. Yani 79
Jakarta 10510, Indonesia
Tel : (021) 4202460
Fax : (021) 4212024
Telex : (021) 49475 GGARAM IA
Surabaya Rep. Office
Jl. Pengenal 7 - 15
Surabaya 60174, Indonesia
Tel : (031) 5451701, 5451721
Fax: (031) 5310592
Telex : (031) 31462 GGARAM IA
Gudang Garam Tbk PT
Board of Directors
Susilo Wonowidjojo - President (June
2009)
Heru Budiman
Edijanto
Herry Susianto
Fajar Sumeru
Buntoro Turutan
Buana Susilo
Rachman Halim- President
Juni Setiawati Wonowidjojo
Yudiono Muktiwidjojo
Frank Willem van Gelder
Hadi Soetirto
Offices
Head Office
Jl. Semampir II/1
Investor Relations
Jl. Jendral A. Yani 79
Jakarta 10510, Indonesia
Tel : (021) 4202460, 4200579
Website:
http://www.gudanggaramtbk.com/index.
php?act=home
Djarum PT
Offices
PT Djarum
JI. Aipda K.S. Tunbun 2C/No. 57
Jakarta, 11410, Indonesia
Tel +62(21) 534 6901/ 534-6905/5340208
Fax + 62(21) 534-6892/534-6893/5346894
Website: http://www.djarum.com/
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16
The Indonesia Tobacco Market: Foreign Tobacco Company Growth
Indonesia is the world’s third largest cigarette market by volume
(excluding China) and there are approximately 57 million smokers in
the country.2-3 According to one tobacco company, the Indonesia
tobacco market consisting of hand-rolled kreteks, machine-rolled
kreteks and white cigarettes was 270 billion sticks with a profit pool of
RP 26.5 trillion ($2.95 billion USD) in 2010, an increase of 18% since
2007.1 Additionally, Indonesia’s cigarette retail volume and value are
predicted to continue to grow consistently over the next five years.2
Indonesia’s growing cigarette market, large population, high smoking
prevalence among men, and highly unregulated market, make the
country an attractive business opportunity for international tobacco
companies attempting to make up for falling profits in developed
markets like the United States and Australia. The powerful presence
and nature of transnational tobacco companies (TTCs) in Indonesia
Source: BAT investor presentation1
increases the threat of the tobacco industry to public health because
the companies’ competitive efforts to reach young consumers and female smokers ultimately increase smoking
prevalence in markets where they operate. 4
Since 2005, the Indonesian market has shifted from being solely dominated by local manufacturers to a market where
the number one, four and six spots are controlled by TTCs: Philip Morris International-owned Sampoerna, British
American Tobacco-owned Bentoel, and KT&G-owned Trisakti respectively. In 2010, the combined market share of these
three companies made up almost 40% of the Indonesian market.2 Leading local tobacco companies include Gudang
Garam (number two), Djarum (number three) and Najorono Tobacco Indonesia (number five).
Increased Presence of TTC in Indonesia
# 1 PT HM Sampoerna/ Philip Morris International (PMI)
• PMI, the leading TTC globally, is a United States-based corporation that acquired the majority share of
Sampoerna in 2005 for Rp 48 trillion ($ 5.2 billion USD).5
• In just three years under PMI, Sampoerna overtook the locally owned Gudang Garam to become the market
leader in Indonesia in 2008.6 Currently the company controls about 29% of the market in Indonesia.7
• By 2010, sales increased by 3.9% to 78.8 billion cigarettes and Sampoerna recorded a net income of Rp 6.4
trillion ($712.5 million USD), a 26.9% increase from 2009.7
• Sampoerna’s dominance in Indonesia is due mainly to its hand-rolled kretek brands Sampoerna Huja and Dji
Sam Soe, machine-rolled kretek A Mild, and white cigarette Marlboro (a PMI global brand).7
o PMI’s 2010 annual report highlights the importance of “local heritage brands” such as Sampoerna A and
Dji Sam Soe to drive company profits.8
“We are reaping significant benefits from our acquisition in 2005 of Sampoerna in Indonesia.
This close to $5 billion investment represents our most successful acquisition to date in
emerging markets.” -CEO Camilleri, 20096
#4 Bentoel Internasional Investama/ British American Tobacco (BAT)
• In 2009, BAT, a British company, finalized its acquisition of Bentoel Internasional Investama, the fourth largest
tobacco company in Indonesia. The British company bought the majority shares of the local company for RP 5.5
trillion ($579 million USD).1
• In January 2010, BAT Indonesia fully merged its operations and assets in Indonesia under the Bentoel name.1, 9
• In 2010, the British-based company controlled 8% of the Indonesian tobacco market and sold 23 billion
cigarettes, a 14% increase from 2009.10
Campaign for Tobacco-Free Kids
November 2011
•
•
Since the merger, Bentoel Internasional has seen huge growth in volume and profit.
o Volumes quickly grew by 2.8 billion sticks and the company recorded a RP 644.2 billion ($71.7 million
USD) profit.1
o The company also recorded a net profit of Rp 111.67 billion ($13.1 million USD) in early 2011, a 210%
increase from the previous year.11
Key Bentoel/BAT brands include kreteks Star Mild and Neo Mild and white cigarettes Luck Strike and Country.2
“We’ve now bought a business which gets us into one of the largest markets in the world. It
gets us into the kretek segment, which is one of the largest segments of one of the largest
markets in the world, so we think it is a very good position...in terms of a platform for future
growth. And, that’s really why we bought [Bentoel Internasional].” CEO Paul Adams, 200912
# 6 PT Trisakti Purwosari Makmur/ KT&G
• KT&G, a South Korean company, signed a deal in July 2011 to buy a 60% stake in Trisakti for RP1.1 trillion
($132.6 million USD).13
• KT&G purchased controlling shares of Trisakti in order to benefit from the company’s sales networks and
knowledge of the kretek market.13
• Prior to KT&G’s acquisition in 2011, the company controlled 0.3% of the Indonesian cigarette market selling 511
million sticks in 2010.2
• KT&G has rapidly been expanding its reach globally by opening new factories in Turkey, Iran and Russia and by
increasing distribution of its most notable brand, Esse.14-15
o Esse is a super slim cigarette directly marketed to health conscious women.15
In Indonesia, transnational tobacco companies are aggressively working to control the tobacco market. Strong tobacco
control policies will be critical to prevent countless future deaths caused by the expansion of transnationals into
Indonesia.
References
1. Fell D. Managing the challenges in Asia Pacific. British American Tobacco; 2011 [cited 2011 September 2]; Available from:
http://www.bat.com/group/sites/UK__8GLKJF.nsf/vwPagesWebLive/DFD562D28D6F1518C12578880058DFD6/$FILE/18_David%
20Fell%20-%20Managing%20the%20Challenges%20in%20Asia%20Pacific.pdf?openelement.
2. Euromonitor International [database on the Internet]. Cigarettes: Indonesia. Euromonitor International. c 2011.
3. Barber S, Adioetomo S, Ahsan A, Setynoaluri D. Tobacco economics in Indonesia. Paris: International Union Against Tuberculosis
and Lung Disease; 2008. Available from: http://www.worldlungfoundation.org/downloads/tobacco_Barber.pdf.
4. Bettcher D, Subramaniam C, Guindon E, Perucic A, Soll L, Grabman G, et al. Confronting the tobacco epidemic in an era of trade
liberalization. Geneva: World Health Organization (WHO) Tobacco Free Initiative; 2003. Available from:
http://www.who.int/bookorders/anglais/detart1.jsp?sesslan=1&codlan=1&codcol=85&codcch=3738&sesslan=1&otherlan=1.
5. Philip Morris International. Press Release: Philip Morris International Inc. (PMI) announces agreement to purchas 40% stake in PT
HM Sampoerna Tbk, Indonesia's third largets tobacco company. PMI; 2005 [cited 2011 September 2]; Available from:
http://www.pmi.com/eng/media_center/press_releases/Pages/200503140000.aspx.
6. Camilleri LC. Morgan Stanley global consumer and retail conference presentation. Philip Morris International; 2008 Novemeber
18. Available from: http://investors.pmi.com/phoenix.zhtml?c=146476&p=irol-presentations.
7. PT HM Sampoerna. 2010 Annual report. 2011.
8. Philip Morris International (PMI). 2010 annual report. New York: PMI; 2011. Available from: http://media.corporateir.net/media_files/irol/14/146476/ar10.pdf.
9. Tjahjono V. BAT Indonesia to merge with Bentoel. Jakarta Globe; 2009 Oct 20 [cited 2011 September 2]; Available from:
http://www.thejakartaglobe.com/business/bat-indonesia-to-merge-with-bentoel/336599.
10. Bentoel Internasional Investama. 2010 annual report. 2011. Available from: http://bentoel.co.id/investor-relation/.
11. Mi. Bentoel Internasional makes big profit of 210% [translated]. Harian Ekonomi. 2011 May 2.
12. Hurt RD, Ebbert JO, Achadi A, Croghan IT. Roadmap to a tobacco epidemic: transnational tobacco companies invade Indonesia.
Tobacco Control. 2011 Aug 18.
13. Agency France-Presse. S. Korea tobacco firm takes over Indonesian company. MSN News; 2011 July 21 [cited 2011 September
2]; Available from: http://news.ph.msn.com/regional/article.aspx?cp-documentid=5070337.
14. KT&G. Global business. 2011 [cited 2011 September 2]; Available from: http://www.ktng.com/eng/index.jsp.
15. Mitchell H. KT&G: Masters of the Super Slim. Tobacco Asia; 2010 [cited 2011 September 2]; Available from:
http://www.tobaccoasia.com/features/240-ktag-masters-of-the-super-slim.html.
Campaign for Tobacco-Free Kids
November 2011
Tobacco Taxes in Indonesia
Based on: Tobacco Economics in Indonesia. Sarah Barber, Sri Moertiningsih Adioetomo, Abdillah Ahsan, Diahhadi
Setyonaluri. 2008.
Low real cigarette prices, population growth, rising household incomes and mechanization of the kretek industry
have contributed to sharp increases in tobacco consumption in Indonesia since the 1970s. The customs law states
that excise tax should be used to reduce consumption of tobacco products. Increasing tobacco taxes is the most
cost-effective way to address the health and economic loss due to tobacco consumption.
Tobacco Consumption is High
There are 57 million smokers in Indonesia1:
• 34% of Indonesians smoke (2004), an increase from
27% in 1995.
• 97% of tobacco users smoke cigarettes; the majority
(88%) of smokers use kreteks.
• 78% of smokers start before age 19. The average
age of smoking initiation is 17.4 years of age.
• More than 97 million nonsmokers are regularly
exposed to second-hand smoke, including 70% of
all children under the age of 15.
Figure 1: Percentage of People that Smoke,
by Gender, in Indonesia, 2004
non
smokers
63%
adult
male
smokers
(up from
53% in 1995)
4.5%
adult
female
smokers
non
smokers
Source: Prevalence data based on SUSENAS estimates of smoking
prevalence and reports of smoking among family members, in the
Tobacco Sourcebook, Ch 2, 2004. Lack of Information
Indonesians lack information and are misinformed
on the risks of tobacco and the addictive nature of
tobacco.
• Striking differences in smoking prevalence
are correlated with educational levels: 73% of
males with no or incomplete primary education
smoke, compared with 48% of males with college
education2—which suggests a need to clearly
communicate health risks.
• Javanese boys 13-17 years of age could repeat the
health warnings on cigarette packs, but also claimed
that smoking one to two packs per day was not
harmful to health.3 Children are socialized early on
to consider smoking normal and socially acceptable.
• Unlike those who use highly addictive but illegal
substances, smokers have many opportunities
to purchase tobacco and are confronted with
advertisements that promote tobacco use as socially
acceptable.4 In a survey conducted between
2004 and 2006, nearly all (89 to 95%) of the
young people surveyed saw a cigarette billboard
advertisement in the past month.5
Impact of Tobacco Use
• Smoking kills at least 200,000 people each year in
Indonesia.6 The disease burden and mortality rate
will continue to increase over the upcoming decades
at current consumption levels.
• Up to one-half of current smokers will die of
tobacco-related diseases.7
• Health care costs for tobacco-related illnesses in
Indonesia could amount to between Rp 2.9 and 11.0
trillion per year ($484 million USD to $1.2 billion
USD.)8,9,10
• High household expenditures on tobacco have
serious welfare implications. In 2005, Indonesians
spent 11.5% of household income on tobacco
products, compared with 11% of available income
on fish, meat, eggs and milk combined, 3.2% for
education, and 2.3% on health.11
Figure 2: Household Income Expenses in
Indonesia, 2005
11.5% Tobacco products
Other
11% Fish, meat,
eggs and milk
3.2% Education
2.3% Health
Source: SUSENAS, Tobacco Sourcebook, Ch 2, 2004.
Higher Taxes Reduce Smoking
The most effective way to reduce tobacco use is to
raise the price of tobacco through tax increases. Higher
prices discourage youth from initiating cigarette
smoking and encourage current smokers to quit.
Tobacco Taxes in Indonesia are Low
Cigarette prices and tax rates in Indonesia are low
relative to other low-income countries and the regional
average.
Figure 3: Tax Rate as a Percent of Price (2004 to
2005)
Indonesia
37%
Vietnam
38%
Philippines
55%
India
55%
63%
Bangladesh
75%
Thailand
20
30
• Tobacco farming and manufacturing contributes less
than 1% of total employment (1996-2006 data).13,14
• The contribution of cigarette manufacturing to total
manufacturing employment has declined steeply
over time from 28% in 1970 to less than 6% today.
• Tobacco manufacturing wages rank low, at 20th
of 24 manufacturing sectors—an average of Rp
660,000 ($73 USD) per month.15
• Despite preferential tax policies to promote tobacco
production by small firms, contribution to total
production by small firms declined from 23% in
2000 to 11% in 2005; 71% of market share is held
by three companies.
• Farmers that cultivate tobacco and clove already
have very diverse crop holdings and engage in other
farm and non-farm enterprises. Alternative crops
exist.
58%
Asia & Pacific average
10
Employment in Tobacco Farming and
Manufacturing is Low
51%
Low income average
0
retail price (HJE); the maximum allowable tax rate
by Indonesian law is 57% of HJE.
40
50
60
70
80
Source: Ayda Yurekli, Presentation to meetings on tobacco economics,
Bloomberg Foundation, New York, November 2007
• Tobacco products have become more affordable
over time as prices have remained stable, household
income has grown, and tobacco products are made
available at disparate prices that are affordable for
all income groups.
• The current tobacco tax structure is one of the
most complex in the world—based on the type of
tobacco production, mode of production (machine or
hand-rolled) and industry production scale. The tax
system promotes gaps in prices between products.
• The tobacco tax averages 37% of sales price.12 This
is low compared with the global benchmark of 70%
of sales price. The tax rate is 31% of the government
Raising Tobacco Taxes has a Positive
Impact on the Economy
• Simulations that predict the overall economic impact
of doubling the tobacco tax rate report a net positive
economic output. These simulations suggest that 60
economic sectors would benefit from a decline in
household spending on tobacco, which is reallocated
to other commodities or investments. Economic
output could increase by Rp 335.4 billion ($36.9
million USD); household income could increase by
Rp 491.6 billion ($54.1 million USD).
• Tobacco taxes would have a net positive effect on
employment and the economy. Research simulating
a doubling of the tobacco tax reports a net positive
increase in employment of 281,135 jobs. This is
primarily because farming and manufacturing
are not ranked high in terms of economic output,
employment and wages in Indonesia.
Tobacco Taxes Save Lives, Increase
Government Revenue, and Improve
the Economy
Implementing the maximum legally allowable tax rates
could prevent 1.7 to 4.0 million tobacco-related deaths
and generate additional revenues of Rp 29.1 to 59.3
trillion ($3.2 to 6.5 billion USD). 5.0 to 11.5 million
smokers would quit smoking. Younger and low
income people would benefit the most because they
are more sensitive to tobacco price increases.
Figure 4: Impact of Increasing Tobacco Tax to
the Maximum Legally Allowable Rate (57% of
Government Retail Price [HJE]) Using Three
Price Elasticity (PE) Estimates
- implementing tax increases across all tobacco products, and;
- automatically adjusting the specific tax for
inflation.
• Implement the maximum legally allowable excise
tax rate for all tobacco products.
• Re-examine the employment generation goal of
the tobacco tax system to determine whether other
programs or policies would be more effective.
This research was funded by the
Bloomberg Initiative to Reduce Tobacco Use.
1Prevalence data based on SUSENAS estimates of smoking
120
100
Current tax (37%)
57% tax, PE = -0.27
57% tax, PE = -0.4
57% tax, PE = -0.67
Tobacco
tax revenue
(Rp trillion)
80
60
40
Smokers
(in millions)
Deaths of
current smokers
due to smoking
(in millions)
20
0
Recommendations
• Use the earmarked tobacco excises to support
local economies that could be negatively affected
by reductions in tobacco consumption, and to
implement tobacco control programs more broadly.
• Set tax rates at a level to correct for market failures
related to lack of information regarding the risks of
tobacco and the addictive nature of tobacco, and to
reflect the true costs of smoking to individuals and
society.
• Simplify the excise tax system by:
- eliminating production tiers,
- using a uniform specific tax,
prevalence and reports of smoking among family members, in
the Tobacco Sourcebook, Ch 2, 2004. 2National Socio-Economic Survey 1995, 2001, 2004. Aceh and
Maluku not included in 2001. Respondents in 2004 were 15
years and older.
3Ngi N, Weinehall L, Ohman A. ‘If I don’t smoke, I’m not a real
man’—Indonesian teenage boys’ views about smoking. Health
education research 2007;22(6): 794-804; doi:10.1093/her/
cyl104.
4Jha P, Chaloupka FJ, Moore J, Gajalakshmi V, Gupta PC,
Peck R, et al. Tobacco addiction. Disease Control Priorities in
Developing Countries (2nd Edition),ed. , 869-886. New York:
Oxford University Press. DOI: 10.1596/978-0-821-36179-5/
Chpt-46, 2006. 5Centers for Disease Control and Prevention, Global Youth
Tobacco Surveys Country Fact Sheets. Indonesia, 2004-2006. 6Kosen S. Chapter 2. The health burden of tobacco use, In
The Tobacco Sourcebook, Ministry of Health, Republic of
Indonesia, 2004. 7Jha P, Chaloupka FJ, Moore J, Gajalakshmi V, Gupta PC,
Developing Countries (2nd Edition),ed., 869-886. New York:
Chpt-46, 2006. 8Kosen 2004. 9World Health Organization. National Health Accounts.
Indonesia, 2006.
10Based on 2007 budget, in Ministry of Finance, Budget Statistics
2007-2008.
11SUSENAS, Tobacco Sourcebook, Ch 2, 2004.
12Ayda Yurekli, Presentation to meetings on tobacco economics,
Bloomberg Foundation, New York, November 2007
13Ministry of Agriculture, December 2006, BPS (Sakernas) and
Ministry of Agriculture, various years. Demographic Institute,
University of Indonesia.
14World Bank, Ministry of Industry, Demographic Insitutute,
University of Indonesia.
15Central Bureau of Statistics, 2003.
Tax and Price :
Affordability and Impacts on
Consumption and Revenue
August 2011
Indonesia
Cigarette
This policy paper is based on the research paper “Cigarette Affordability and Impact
of Tobacco Taxes in Indonesia” by Ms. Titissari Rumbogo and Mr. Abdillah Ahsan of
the Demographic Institute under the University of Indonesia Faculty of Economics.
Written and edited for SITT by Dr. Ulysses Dorotheo
Any omissions or errors are unintentional and are the publisher’s responsibility.
Southeast Asia Initiative on Tobacco Tax (SITT)
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Sout h e a s t As i a I n i t i at i v e o n To b a c c o Ta x
FACT SHEET
Growing smoking prevalence and tobacco-related mortality:
In 2004, Indonesia had 57 million smokers. There is a high and steadily increasing trend of cigarette consumption among both
men and women in Indonesia. In 2010, Indonesian adult smoking prevalence was estimated at 34% (65.9% among men and 4.2%
among women), a significant increase from 27% in 1995. At least 200,000 Indonesians die annually from smoking-related illnesses.
Large net economic losses from tobacco use
The total consumption cost of tobacco in 2001, including health care costs and losses from premature deaths, amounted to Rp.
127.4 trillion (USD 13.9 billion). This cost is 7.7 times the tax revenue generated from tobacco in the same year, which was only
Rp. 16.5 trillion (USD 1.8 billion).
Much room to raise taxes
The Excise Law No.39/2007 allows for a maximum excise rate of 57%. The current average excise tax rate on tobacco is 46%,
while the total tobacco tax is 54.4% (VAT is 8.4%) (far below the recommended level of 67-80%) of the retail price.
Increasing affordability of cigarettes
The average nominal price of a pack of cigarettes is only about Rp 6,000. Already cheap, cigarettes have become increasingly
more affordable over the past several years due to a generally stable nominal price of cigarettes vis-à-vis Indonesia’s rapid
economic growth and consumers’ increased purchasing power. This has resulted in increased tobacco consumption and its
related diseases, disabilities, and premature deaths.
Positive fiscal and health impacts of increasing taxes
Significant increases (20 to 34%) in government excise revenue are expected from gradual tax increases up to the maximum
level (57%) allowed by the current Excise Law.
Each tax increase has the potential to save 210,000 to 500,000 Indonesian lives. By applying the 57% excise tax rate, smoking
prevalence could be reduced from 34% to 31.5%.
In spite of the reduced smoking prevalence and cigarette consumption, none of the simulated tax increases had any significant
negative impact on industry revenue; even when industry revenue was negative, the percentage change was only -1.8%.
Policy recommendations
To maximize fiscal and health gains, the maximum excise rate (57%) allowed by law should be implemented as soon as possible.
If further gains are to be expected, the ceiling on excise taxes should be removed to allow for even higher excise rates to be
indonesia
imposed.
2
Cigarette Tax and Price : Affordability and Impacts on Consumption and Revenue, August 2011
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S o u t h e a st As i a In i t i at i v e o n T o b a c c o Ta x
I. Introduction and background
According to the Indonesian Ministry of Health, there were about 57 million Indonesians smoking in 2004, and at least 200,000
Indonesians die annually from smoking-related illnesses.1 These worrisome statistics are even more troubling given the high
and steadily increasing trend of cigarette consumption among both men and women in Indonesia. In 2010, Indonesian smoking
prevalence was estimated at 34.7%. While smoking among adult males has been steadily increasing (65.9% in 2010), consumption
among women has risen significantly in recent years, with almost a 300% increase from 1.3% in 2001 to 5.2% in 2007.2
Figure 1. Prevalence of tobacco consumption in Indonesia from 1995 – 2010
Source: National Socio Economic Survey 1995, 2001 and 2004; and Basic Health Survey 2007 and 2010
Such high rates of smoking can simultaneously and significantly contribute to premature deaths of smokers, increasing health costs,
and decreased work productivity. An economic analysis of tobacco use in Indonesia3 points out that in 2001 Indonesia saw a total
consumption cost of tobacco amounting to Rp. 127.4 trillion (USD 13.9 billion). This figure includes the use of tobacco products,
medical bills for sicknesses, disabilities, and early deaths caused by tobacco use. Notably, this cost is 7.7 times the tax revenue
generated from tobacco in the same year, which was only Rp. 16.5 trillion (USD 1.8 billion).4 It is therefore imperative that this
worsening consumption trend and its related high socio-economic costs be adequately addressed in both the short and long term.
International experts, as well as Parties to the WHO Framework Convention on Tobacco Control (FCTC), recognize that price
and tax measures are an effective and important means of reducing tobacco consumption among various segments of the
population,5 in particular young persons and the poor, who are the most sensitive to price changes. Because tax increases
also have a clear fiscal benefit of generating much needed government revenues from direct tax collection and from health and
environmental cost savings, economists, other experts, and the public sector also support them. In addition, dedicated tobacco
taxes have a significant potential to provide sustainable funding for health promotion and other social development programs.6
Many countries, however, especially developing ones, have not yet harnessed this potential, their tobacco taxes being generally
low in absolute and relative terms.
indonesia
__________________________________________________
1 Kosen S. ‘The health burden of tobacco use’ in The Tobacco Sourcebook, Ministry of Health, Republic of Indonesia, 2004.
2 National Socio Economic Survey 1995, 2001 and 2004; and Basic Health Survey 2007 and 2010
3 Kosen S. ‘The health burden of tobacco use’ in The Tobacco Sourcebook, Ministry of Health, Republic of Indonesia, 2004.
4 National Socio Economic Survey 1995, 2001, and 2004; and Basic Health Survey 2007
5 Article 6 of the WHO Framework Convention on Tobacco Control
6 Carroll A. The Establishment and Use of Dedicated Taxes for Health. World Health Organization, 2004.
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Economic and social conditions differ though in every country. During recent decades, many developing countries experienced
high economic growth and/or high inflation; however, the general increase in consumer prices has not been reflected in the price
of tobacco products, making them more affordable to the general public.7 A comparison of nominal and real cigarette prices
in Indonesia from 1970-20058 showed that while nominal cigarette prices have increased, their real prices have remained
relatively unchanged.
Figure 2. Comparison of nominal and real tobacco prices, 1970-2005
Source: Barber S, Adioetomo SM, Ahsan A, Setyonaluri D. Tobacco Economics in Indonesia, 2008.
While the Indonesian government has only minimally increased excise taxes on cigarettes in recent years from 38% to 44%, and
then from 44% to 46%, the excise rate is still below the maximum (57%) allowed by the country’s Excise Law No.39/2007
and averages to only 52.4% of retail price, far below the recommended tobacco tax level of 67%-80% of the retail price
per cigarette pack.9
II. About this research
Because economic growth coupled with low cigarette prices contribute directly to rising cigarette consumption, there is a need
to examine the level of cigarette affordability in terms of percentage of income used to purchase a pack of cigarettes, the trend
of affordability over time, and the fiscal and public health impacts of tax increases.
This research therefore answers two important questions:
1. How affordable are cigarettes in Indonesia, and what is the affordability trend over time, using the measure of Relative Income
Price?
indonesia
2. How would cigarette tax and price increases affect affordability, government tax revenue, industry revenue, cigarette
4
consumption, and smoking prevalence?
__________________________________________________
7 Blecher EH. Targeting the affordability of Cigarettes: A New Benchmark for Taxation Policy in Low-Income and Middle-Income Countries.
Tob Control 2010; 19: 325-330.
8 Barber S, Adioetomo SM, Ahsan A, Setyonaluri D. Tobacco Economics in Indonesia. Paris: International Union Against Tuberculosis and
Lung Disease; 2008.
9 World Bank, Curbing the Epidemic: Governments and the Economics of Tobacco Control, 1999.
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Such findings would indicate an appropriate level of cigarette excise burden to make cigarettes less affordable particularly among
the low- and middle-income groups.
In particular, this research uses measures such as Relative Income Price (RIP)10 developed by Blecher and van Walbeek in
their cigarette affordability model11 and the “percentage of daily wage” measure for analysis based on secondary data sources
on cigarette price and income in the past 10 years. Six income measures were used in calculating affordability: per capita gross
domestic product (GDP), per capita national income at current price as a measure of income, and, based on the different costs
of living in each, the nominal wage of labor for four regions in Indonesia (Jakarta as capital of Indonesia & West Java, Central
Java & Yogyakarta, East Java & Bali, and outside of Java & Bali).
The simulation model introduced by van Walbeek12 was used to study the fiscal and public health impact of tobacco taxes.
III. Research results and analysis
A. Cigarettes are becoming more affordable
Despite the fact that nominal cigarette prices have gone up in the last decade from Rp. 2,995 in 2000 to Rp. 6,023 by
2010, Indonesia still has among the world’s cheapest and most affordable cigarettes. Cigarette affordability is determined
by the interaction of consumers’ income levels, which have been growing steadily from year to year, and cigarette nominal prices,
which have remained relatively stable since 2003. As a result, cigarettes have become more affordable over the past several
years, as illustrated in Figures 3 and 4.
Figure 3. Relative Income Price (RIP), 2000-2010
indonesia
__________________________________________________
10 The Relative Income Price (RIP) is a broad measure of affordability that calculates the percentage of per capita GDP required to purchase 100 packs
of cigarettes.
11 Blecher EH and van Walbeek CP. Cigarette affordability trends: an update and some methodological comments. Tob Control 2009; 18 (3), 167–175.
12 Van Walbeek C. A simulation model to predict the fiscal and public health impact of a change in cigarette excise taxes. Tob Control 2010; 19 (1), 31–36.
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Figure 4. Price as percentage of national average nominal daily wage of labor, 2000-2010
B. Impact of raising taxes
Due to the addictive nature of tobacco consumption and the inelasticity of demand for cigarettes, increasing the excise tax
has the potential to not only reduce consumption of a harmful product but also to generate additional revenues for the
government. While the Indonesian government has increased excise taxes on cigarettes from 38% to 44%, and then from 44%
to 46%, this level is still below the maximum allowed by the country’s national tax law. Four step-by-step excise tax increase
scenarios, representing the actual and potential rates levied in Indonesia (38% to 44%, 44% to 46%, 46% to 50%, 50% to 57%)
were run through van Walbeek’s tax impact simulation model.
Table 1. Results of tax impact simulation model
Before tax
Scenario 3:
Scenario 4:
38% to 44%
44% to 46%
46% to 50%
50% to 57%
38
44.1
46.1
50
57
Retail price/pack (USD)
1.03
1.22
1.34
1.54
1.94
Industry price/pack (USD)
0.56
0.59
0.62
0.65
0.68
34
33.3
32.9
32.4
31.5
380,000
210,000
300,000
500,000
12.212
11.886
11.416
10.675
-4.7
-2.7
-4.0
-6.5
6.548
6.555
8.795
11.836
30.5
11.9
20.1
34.7
7.165
7.346
7.428
7.293
0.04
2.20
0.84
-1.81
of retail price
Adult smoking prevalence (%)
Lives saved
Cigarette consumption
(billion packs/year)
12.817
% change in cigarette
consumption
Excise tax revenue
(USD billion)
indonesia
Scenario 2:
increase
Excise tax incidence as %
6
Scenario 1:
5.016
% change in excise tax
revenue
Industry revenue (USD billion)
% change in industry revenue
7.161
Indonesia.indd 6
9/2/11 9:08 PM
Summarized in Table 1, the simulation model indicates that all of the scenarios result in significant increases (20 to 34%) in
excise revenue for the government, except for Scenario 2, where the small 2% increase in excise tax resulted, as expected, in
the smallest (11.9%) increase in tax revenues.
From a public health perspective, a few hundred thousand Indonesian lives were saved with each tax increase; although Scenario
2, having the smallest rate increase, also resulted in the fewest lives saved.
Additionally, in spite of the reduced smoking prevalence and cigarette consumption, none of the simulated tax increases
had any significant impact on industry revenue; even when industry revenue was negative, the percentage change was only
-1.8%, a negative cost that the industry might easily afford to absorb (industry still earns over USD 7.2 billion) or offset through
even a small increase in retail prices.
IV. Policy recommendations
There are at least three purposes for imposing a tax on tobacco products: to raise revenue, correct negative externalities (e.g.
health care costs), and discourage use of a harmful product (i.e. reduce consumption).
The research indicates that in order to achieve these objectives, the maximum excise rate allowed by law (57%) should be
implemented as soon as possible, as this would not only generate additional revenue for the government but also control
consumption and improve the public’s health.
As cigarettes are becoming more affordable in Indonesia, the government should ensure that excise taxes are indexed to
inflation and significantly high enough (at least 67% of the retail price) to discourage initiation among youths and curb
current smoking. If maximal gains are to be expected, the ceiling on excise taxes should be removed so as to allow even higher
excise rates to be imposed.
Finally, this study also touches on the complexity of the Indonesian tobacco taxation system and highlights the need to simplify
this system as soon as possible so as to prevent the tobacco industry from manipulating the system to avoid paying taxes. All
tobacco products should also be taxed uniformly to discourage users from switching to lower priced brands, which
would erode both the economic and public health benefits of any tax and price increase.
indonesia
For more information, please contact: Mr. Abdillah Ahsan, SITT Indonesia Tax coordinator (Researcher, Demographic Institute, Economic Faculty, University of Indonesia)
Email: [email protected]
Indonesia.indd 7
7
9/2/11 9:08 PM
Vision:
Towards a healthy,
tobacco-free ASEAN
Mission:
Working together
to save lives
by accelerating
effective implementation
of the FCTC
in ASEAN countries
Southeast Asia Tobacco Control Alliance
Thakolsuk Place, Room 2B, 115 Thoddamri Road,
Dusit, Bangkok 10300, Thailand
www.seatca.org
Indonesia.indd 8
9/2/11 9:08 PM
Estimates of Illicit Cigarette
Consumption in INDONESIA :
An Analysis of Trade and
Consumption Data
Country-Level Results from the Regional Study
“The Political Economy of Tobacco Control in Southeast Asia”
June 2011
Abdillah Ahsan
Nur Hadi Wiyono
Diahhadi Setyonaluri
Demographic Institute
Faculty of Economics University of Indonesia
This project is supported in part by Grant Number R01TW007924 from the Fogarty International
Centre (FIC) and National Cancer Institute (NCI) at the U.S. National Institutes of Health.
The content is solely the responsibility of the presenters and does not necessarily represent the
official views of the FIC, NCI, or the U.S. National Institutes of Health.
Overview
Data from trade and consumption surveys indicate that cigarette consumption is increasing in Indonesia, with illicit
consumption estimated at approximately 12% of overall consumption for the years 2002-2004. Illicit consumption
resulted in government revenue losses of approximately one trillion Rp per year during those years. The government
should increase cigarette taxes in order to curb rising rates of cigarette consumption and to increase government
revenue, and should enforce anti smuggling laws to curb illicit consumption and protect government revenue.
Methods
Two methods were used to measure illicit smuggling into the country and illicit domestic consumption of cigarettes.
To measure the level of illicit smuggling into the country, UNCOMTRADE data on other countries’ cigarette exports to
Indonesia were compared against Indonesian customs import data. To calculate illicit consumption, legal sales were
compared against reported survey consumption. Legal cigarette sales were calculated by adding domestic production
and imports of cigarettes, and subtracting exports.
Key Findings
•
Before 2002, legal cigarette sales actually exceeded reported domestic consumption. This could be due to a
combination of underreporting and/or smuggling out. After 2002, the data flip; survey-reported consumption exceeds
tax paid sales. These trends indicate that illicit domestic production and consumption likely began increasing after
2001; the chart below shows a steady, constant increase in level of cigarette consumption, but wavering trends in
tax paid sales of cigarettes.
250
200
150
Tax Paid Sales
100
50
Consumption from
Survey data
2
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
19
96
0
19
95
Billions of sticks
Cigarette Consumption 1995-2004
Tax Paid Sales vs Survey data
•
From 2002 - 2004, reported cigarette consumption exceeded legal cigarette sales by 11%-15% each year.
•
Almost all of the illicitly consumed cigarettes appear to have been domestically produced, as the trade data
show that imports of cigarettes into Indonesia were negligible compared to domestic production. Almost all of the
cigarettes imported into Indonesia bypassed customs, though the tax revenue from these cigarettes would only
have accounted for approximately 1% of total revenue from cigarette taxes.
•
The loss in government revenue from 2002-2004 for all illicitly consumed cigarettes ranges from Rp 900 million per
year to Rp 1.17 trillion per year
Estimates of Illicit Cigarette Consumption in Indonesia : An Analysis of Trade and Consumption Data
Other key issues
•
Underreporting in this survey was conservatively estimated to fall between 0% and 15%, although underreporting
data from other countries suggests that underreporting may be higher. A higher level of underreporting translates
into higher levels of illicitly consumed cigarettes and government revenue losses.
•
The discrepancies between sales and reported consumption may be due to smuggling out and/or underreporting.
Thus, illicit exports might be a significant issue to study in future analyses of the cigarette trade in Indonesia.
Higher rates of smuggling out would also mean more government revenue losses.
Policy Recommendations
1. Raise the tax on cigarettes. Indonesia’s cigarette tax is among the lowest in the region, while cigarette
consumption in Indonesia is on the rise, increasing by 75% in the period between 1995 and 2005. Taxes would
increase government revenue while curbing the rise in cigarette consumption. It is highly unlikely that increased
taxes would increase the rate of smuggling, as Indonesian smokers prefer domestically-produced kreteks over
imported white cigarettes.
2. Improve enforcement of cigarette tax laws and reduce illegal exports. This would
safeguard government revenues that are otherwise lost from illicitly smuggled exports and illicit consumption of
domestically produced tobacco.
3. Impose requirements for using special labels and packages to distinguish legal
packs from illicit packs, and impose stronger penalties for using counterfeit excise
stamps. It is unclear if consumers are aware they are consuming illicit cigarettes, and distinguishing these packs
will help consumers and officials to follow and enforce the law.
4. Impose stronger penalties on illicit domestic cigarette manufacturers. Domestic
production is concentrated in a few provinces, and focusing efforts in these areas may yield better results. These
suppliers are the main source for illicit consumption, and targeting them will reduce the supply of illicit cigarettes.
5. Create regulations that require licenses and impose standards for manufacturers, importers,
exporters, wholesalers, transporters, warehouses, retailers and anyone else who is actively engaged in the
production and distribution of tobacco products.
Estimates of Illicit Cigarette Consumption in Indonesia : An Analysis of Trade and Consumption Data
3
ILLICIT
CIGARETTES
IN INDONESIA
June 2011
Abdillah Ahsan
Nur Hadi Wiyono
DEMOGRAPHIC INSTITUTE
FACULTY OF ECONOMICS, UNIVERSITY OF INDONESIA
This project is supported in part by Grant Number R01TW007924 from the Fogarty International
Centre (FIC) and National Cancer Institute (NCI) at the U.S. National Institutes of Health.
The content is solely the responsibility of the presenters and does not necessarily represent the
official views of the FIC, NCI, or the U.S. National Institutes of Health.
Background
Illicit tobacco trade in Indonesia consists of illegal domestically produced cigarettes as well as cigarettes smuggled from abroad. This
is recognised as an increasing problem that has not been quantified.
Methods Two methods were used to estimate Indonesia’s illicit cigarette trade in terms of both volume and revenue loss. Method
1 estimates illicit trade as the discrepancy between, domestic consumption minus legal sales of cigarettes. Method 2 estimates illicit
imports as the differences between exports to, and official imports into Indonesia.
Data The period of analysis is 1995-2006 using data from the Indonesian Central Board and Statistics and Excise and Customs, and
US Department of Agriculture.
Results
Estimates from method 1 suggest illicit trade from illegal domestic cigarette production and net smuggling out of Indonesia, amounted
to 43 billion sticks in 1995, falling to 10 billion by 2001. During 2002-2004 increased illegal domestic production of cigarettes together
with possibly some net smuggling in, amounted to 23-31 billion sticks per year or 10-14% of total cigarette consumption. The resultant
loss of government revenue ranged from Rp 2.7 Trillion to Rp 3.5 trillion (US$ 327-409 million) for 2002-2004, or between 9% and
13% of total tobacco excise revenue. There were considerable trade discrepancies between the values of imports and exports of
cigarettes as reported by Indonesia and by the origin or destination countries. However official imports into Indonesia are low, and to
the extent that their difference from exports to Indonesia are an indication of smuggling into the country, they represented only Rp270
to Rp 350 million or some 0.001% of total cigarette revenue.
Conclusion
The large part of illicit cigarette trade in Indonesia appears to be from illicit domestic production. In order to reduce both illegal
cigarette production and smuggling, the government should increase resources to enforce the laws concerning the excise system and
impose stronger penalties, especially as related to illicit cigarette production,.
Under Article 15 of the Framework Convention for Tobacco Control (FCTC)1, all governments ratifying the FCTC are required to
address smuggling by collecting data about cross border trade in tobacco products; enacting or strengthening legislation against illicit
trade in tobacco; destroying counterfeit and contraband tobacco; adopting and implementing measures to monitor and control the
distribution of tobacco products; and adopting measures to enable the confiscation of proceeds derived from smuggling.
Illicit cigarette trade includes smuggled cigarettes and illegal domestic production. It has been suggested by the Indonesian Ministry of
Health that smuggling is around 5% of the domestic sales2. This relatively low estimate reflects the Indonesian preference for kreteks
above white cigarettes, which predominate in the illicit cigarette trade, and makes smuggling into Indonesia unprofitable. Some 90%
of Indonesian smokers smoke kretek, a tobacco and clove cigarette produced almost exclusively in Indonesia, often illegally. The
low price of kreteks may have led to Indonesia being an exporter of smuggled cigarettes, especially to the main destination countries
of Indonesian migrant workers including Malaysia, Hong Kong, Taiwan, Korea, and the Middle East. Bootlegging is unlikely as
Indonesia’s tobacco tax rate is low compared to neighboring countries except Cambodia. Smuggling white (tobacco only) cigarettes
into Indonesia has been identified as potentially profitable; a BAT-commissioned study reported a preference among Indonesian
consumers for contraband versions of international brand cigarettes3 (ref). Currently this is relatively low in Indonesia for the reasons
given above.
Illicit cigarette trade undermines tobacco control policies by lowering price and encouraging consumption particularly by the young
and poor4 and denies governments excise revenue. Indonesia’s complicated tobacco excise tax system creates incentives for
smokers to ‘trade down’ to cheaper illicit cigarettes, and in Indonesia illicit trade is recognised also as an obstacle to fairly sharing
tobacco excise revenue (Damiri, 2008). This study aims to estimate the magnitude of the illicit trade and associated revenue losses,
and so to provide the government with the rationale to improve law enforcement
The Tobacco Tax System in Indonesia
Indonesia has a highly complex tobacco tax system under which tobacco tax is determined by the type of cigarette, the scale and
method of production and the retail price range, but at 38% on average, is relatively low compared to other ASEAN countries (70% in
Thailand, 49 – 57% in Malaysia, 46 – 49% in Philippines and 45% in Vietnam). Cambodia is the only country with a lower rate at 20%.
Roll Your Own (RYO) cigarettes are not taxed if used for personal consumption. Many studies have shown that increaing tobacco
excise results in a win win solution, by increasing revenue and decreasing consumption; a 10% increase in tobacco excise tax would
result in a 4% reduction in consumption and a 7 -9% increase in tobacco excise revenue5(Barber et al 2008).
2
ILLICIT CIGARETTES IN INDONESIA
Illegal domestic consumption in Indonesia.
There are six types of illegal domestic cigarettes in Indonesia; unpacked cigarettes, or packed without excise stamps, with fake
stamps, stamps belonging to other cigarette companies, misallocated or used excise stamps6 Damiri 2008. The penalty for selling
or providing illicit cigarette is between a one and five year jail sentence and/or a fine of two to ten times the excise value that should
have been paid. There is however little information on the Indonesia’s illicit cigarette trade, and this study aims to investigate its
magnitude and impact on government revenue.
Methodology
Merriman 7 identified five broad approaches to estimating tobacco smuggling:
(1) interviewing experts; (2) observing smokers and their habits; (3) comparing legal tobacco sales with consumption estimated from
surveys; (4) monitoring tobacco trade; (5) using econometric analyses. In this study estimates are based on approaches 1, 3 and 4,
by first discussing with the relevant government officials; comparing tax paid sales data with survey consumption data; comparing
data on exports to Indonesia with data on its imports. In a further study to complement this work, a survey of domestic illicit cigarette
production is being conducted. The two methods to estimate illicit consumption are:
Method 1
This method estimates the magnitude of illicit cigarettes as consumption from surveys minus legal sales.
The consumption of legal cigarettes C = P + (M – X) ………..………............................................................ 1
Where C is the consumption of cigarettes based on survey data, P is the domestic legal production, M is imports of cigarettes into
Indonesia, X is exports of cigarettes from Indonesia
If C – P ≠ (M – X) ………………..................................................................................................................... 2
Then illicit cigarette trade is taking place
If C – P > (M –X )………………...................................................................................................................... 3
Then illicit cigarettes exists (as net smuggling in and/or illegal domestic cigarettes production)
If C – P < (M – X)………………....................................................................................................................... 4
Then illicit cigarettes exist (as net smuggling out and/or under reporting of consumption)
Method 2
This second method measures trade discrepancies between data on exports from the country of origin and data on imports from the
importing country. A discrepancy may indicate the level of smuggling into the country; it may also reflect lags between exports and
imports, administration, value (FOB and CIF), recording period, change in exchange rates, or diversion to third countries. We use the
results from this method to complement results from method 1. Method 2 is based on matching trade data between Indonesia and its
trading partners using the following formulae (Merriman 2002).
It has been suggested that smuggling exists when:
Qm DC ≠Qx CO or Qx DC ≠Qm CD
Where Qm DC is the quantity imported in sticks by the domestic country
Qx CO is the quantity exported in sticks by country of origin
Smuggling into Indonesia is likely if Qm DC < Qx CO ……………………….…………..…………................... 5
We did not measure smuggling out by this method.
Loss of government revenue due to illicit cigarettes
Smuggling Out
Revenue loss of export tax = quantity of cigarettes smuggled out X unit export tax……………………........... 7
Smuggling In
Revenue loss of import duty = quantity of cigarettes smuggled in X unit import duty Value + excise tax…. 8
Illegal Domestic Cigarette production
Government revenue loss due to illegal domestic cigarettes=
Quantity of illegal domestic cigarette production X (excise Tax + value added tax)…………………….…...... 9
Total government revenue loss of illicitly produced cigarettes is
Lost revenue from smuggled cigarettes + Lost revenue from illegal domestic cigarettes…...........................10
Sources of data:
The period of analysis for which data is available is 1995-2004. Cigarette consumption C is calculated from raw data from the
National Socio-Economic Survey (Central Board of Statistic, 1995, 2001 and 2004). Cigarette production data were obtained from
the Directorate General of Excise and Custom based on excise Stamps Orders. Imports and exports data were obtained from the US
Department of Agriculture Data and the Indonesian Directorate General of Excise and Customs ( also available for 2005 and 2006).
Smoking prevalence and average daily cigarette consumption were obtained from the National Socio-Economic Survey (Susenas)
3
for the years 1995, 2001 and 2004. Population estimates are based on population projections of the Indonesia Central Board of
Statistics (CBS).
The value of sales of illegal domestically produced cigarettes and smuggled cigarettes was calculated from its volume times the
median regulated retail sales price (Harga Jual Eceran, HJE). To get the average price, the median price for each cigarette type was
weighted by its proportion of cigarette production for each year. To estimate revenue loss from smuggling for imported cigarettes, the
median price of each cigarette type was weighted by its proportion to cigarette import for the corresponding years.
Results
Method 1 Estimation of consumption from the survey method
Legal sales equal to production plus imports minus exports (P+M-X) are presented in Table 1 together with consumption ( smoking
prevalence, times average daily cigarette consumption, times the adult population, times 365 which measures what smokers say they
smoke).
Production
Legal sales figures are presented in Table 2 together with consumption to obtain a measure of the illicit cigarettes trade in Indonesia.
Table 2 indicates that cigarette sales exceeded cigarette consumption until 2002-2004. From 2002-2004 legal cigarette sales (column
5) slightly decreased while consumption continued to increase as population increased (column 1). Cigarette production increased
again in 2005.
Production of Manufactured Tobacco by Type
The production of white cigarettes (tobacco only) decreased from 12% to 6%, of total production between 1995 and 2006; the
proportion of kretek (tobacco and clove cigarette increased from 85% to 91% production over the same period.1
Trends in cigarette exports and imports by value: data available 1995-2004
During the whole period of the study Indonesia was a net exporter of cigarettes although exports accounted for only 2% to 3% of
domestic cigarette production and fluctuated from 21 billion in 1995 to 15 billion sticks in 2004 (Barber et al, 2008). Legal imports were
much lower even than exports and fluctuated between 294 million in 1995 and 20 million sticks in 2004 (Table 2 columns 6 and 7).
Estimation of the illicit cigarettes (method 1)
The estimated consumption (sales) of cigarettes in Indonesia based on USDA trade data (Table 2 column 8) was higher than the
estimated consumption based on the survey data (Table 2 column 1) by an amount ranging from 30% in 1995 to 5% in 2001. This
may have reflected smuggling of cigarettes out of Indonesia and possibly to under reporting of consumption. From 2002 to 2004, the
opposite occurred and estimated consumption based on the survey data was higher than that based on trade data (USDA). This might
be explained by net smuggling in (likely to be small for the reasons given above), and increased domestic illegal cigarette production,
exceeding continuing smuggling out of Indonesia.
Method 1 estimates (sensitivity analysis assuming different levels of under reporting)
Table 3 gives the estimates of illicit trade assuming different levels of under reporting. It is common experience for survey participants
to underreport both whether and how much they smoke. For this reason we have carried out a sensitivity analysis assuming levels
of underreporting of 0, 5, 10 and 15% (our judgement is that 0% underreporting is the most likely because smoking behaviour is
generally socially acceptable in Indonesia). Estimates for equation 2, 3 and 4 are given below in Table 3 indicating the level of illicit
cigarette trade. From 2002 to 2004 the situation reversed with estimated consumption exceeding legal sales, indicating probably the
major surge in illegal cigarette domestic production, and net smuggling into Indonesia together of 23 – 31 billion sticks or 10 – 14 %
of total consumption and around 10-15% of legal production.
Estimates of illicit cigarette trade using Method 2
To assess cigarette smuggling using the second method, we pair Indonesia’s exports from other economies in the world, with data
on imports to Indonesia. We present data for the ten economies with the highest export-import discrepancy with Indonesia. Table 6
presents the export import discrepancy between cigarette imports as recorded by Indonesia and exports as recorded by Indonesia’s
exporting partners. From 2003 to 2004 under-invoicing is seen to make up the majority (96% to 99%) of Indonesia cigarette imports,
rising from 16.8 million to 24.4 million sticks in 2004 (then to 25.2 in 2006). However as legal imports are low, this represents only
0.01 % of cigarette consumption.
4
1 The number of cigarette production is based on the excise stamp orders of cigarette manufacturers to custom and excise
Government Revenue Loss due to Illicit Trade in Cigarettes (2002-4)
Government revenue loss due to the illicit trade is estimated using equations 7-10 above. Tax rates differ for domestic production
and imports, so it is necessary to ascribe illegal trade to each of these two categories. (The experience of the Directorate General
of Customs and Excise officer is that illegal domestic production far exceeds cigarette smuggling, and illicit home production is
easy.) We assume that illegal production falls between 50 and 100% of the illegal trade.
The estimates of revenue loss use the average excise tax of 31 percent of retail price and zero underreporting and no smuggling
out since 2002 (if smuggling out, there would be a corresponding extra loss of export tax); value added tax of 8.4 percent between
2002 and 2004.
Revenue loss was calculated for 2002-2004 (the positive discrepancy) between legal sales and consumption. Import duty for
cigarettes is 15 percent (Barber et al 2008) and the average excise tax for imported cigarettes is higher than for domestically
produced cigarettes. Based on the Ministry of Finance Decree in 2002, the excise tax for imported cigarettes ranged from 20 to
40 percent. Since it is mostly white cigarettes imported to Indonesia (Barber et al 2008), the high excise rate of 40 percent was
used for calculation to estimate the loss of revenue due to smuggling in.
Based on advice from Excise and Custom officers, Scenario 5 [90:10] was preferred and using this scenario, the government
revenue loss from illicit cigarettes for 2002-2004 would be Rp 2.7 to 3.5 Trillion {US $ 270-350 Million}. The trend of revenue loss
follows the trend of illicit cigarettes; it by increased in 2003 and decreased in 2004.
Revenue loss as a percentage of tobacco excise revenue
The revenue loss from illegal domestically produced cigarettes {Rp 2.4 - 3.1 Trillion} in 2002-2004, was between 8% and 12% of
the total cigarette tax revenue {Rp 22,882 to Rp 28,636 Trillion}, and the loss from net smuggling may be Rp 300 million or 0.9 to
1.3% of total tobacco revenue in the same period. This gives an overall revenue loss of 9% – 13% (Table 5).
Discussion
Estimating illicit trade is by its nature an imprecise science, so we have used three of Merriman’s proposed methods to triangulate
our estimates. Talking to customs and excise officials identified that they experienced illegal production as the main problems of the
illegal trade. The method of differences between legal domestic sales and estimates of consumption from surveys provided our main
results for estimating illicit trade. However this suffers from the problem that the estimate may be confounded by consumer under
reporting. However the latter is not thought to be a significant problem for Indonesia as smoking is generally socially acceptable.
The method of differences in exports as recorded by exporting countries and the corresponding recorded imports may give good
estimates of global smuggling, but has limitations for an individual country. In the case of Indonesia, the latter estimates were useful
to confirm the opinions of the officials that smuggling into the country is a minor problem, while the majority of illicit tobacco trade is
of illicit domestic production.
Results using method 1 suggest that there was a net deficit in consumption relative to legal sales from 1995 and 2001. This probably
consisted of net smuggling out of Indonesia and/or under-reporting of 43.263 billion sticks in total in 1995 or 22% of tax paid sales. It
is not clear to what degree this was smuggling out or under reporting, but as stated there is reason to believe the latter is small, and
this will be addressed in future research (Wave 2). The level of smuggling out increased in 1996 and then steadily decreased to ten
billion sticks (2.5% tax paid sales) in 2001 and probably consisted mainly of illegal exports to migrant Indonesians.
Our analysis suggests that by 2002-2004, the latest available data, there was a substantial increase in production of illegal domestic
cigarettes and some net smuggling in. Together these amounted to at least 23-31 billion sticks per year or 10-14% of cigarette
consumption, with a revenue loss between Rp 2.7 Trillion and Rp 3.5 trillion (US $ 327-409 Million ) or 9% to 13% of total tobacco
excise revenue.
This increase in illegal cigarette production and net cigarette smuggling into Indonesia, would have pushed down the demand for legal
cigarette production, and it is apparent that legal cigarette production decreased from 226 billion sticks (2001) to 201 billion sticks
(2003), while the overall consumption increased due to increasing population and both increasing smoking prevalence and intensity
of smoking from the cheaper illicit cigarettes available. The Ministry of Health estimated the proportion of cigarettes smuggled into
Indonesia to be 5% of the overall cigarettes sold (Tobacco Source Book, 2004). If we take this to be indicative, the larger parts of the
illicit cigarettes would therefore consist of illegally produced cigarettes.
This is consistent with the evidence that there are many thousands of small producers of cigarettes in Indonesia with no identification
number, although the government requires that all manufacturers, importers, distributors, and retailers who deal with goods are
subject to excise, and have a permit from NPPBKC. In East Java 1214 small cigarette producers were operating and only 903 had
identification numbers (Santoso, 2004).
5
Indonesia’s records for imported cigarettes fall far below the figures recorded by the corresponding exporting economies. Imported
cigarettes are mostly white cigarettes such as Marlboro, Dunhill and SE 555. Between 2003 and 2006 the largest trade discrepancy
with Indonesia are consistently Singapore and China. (Online newspapers2 report that Marlboro, Ardath and Gudang Garam, with
fake excise stamps, were smuggled from China to Indonesia through both airports and seaports, and during 2004-2005 the Directorate
General of Excise and Custom intercepted fake cigarettes from China amounting to 6.8 million boxes valued at 20 billion rupiah). The
overall discrepancies are however only very small percentages of total consumption, and represents an insignificant proportion of the
tobacco revenue. It is notable that International manufacturers including Philip Morris and BAT have not been able to compete with
local manufacturers which may be the reason Philip Morris bought Sampoerna in 2005 to produce inside Indonesia.
The Ministry of Finance has now introduced policies to simplify the complex tobacco tax system and to raise the overall rate. The
government raised tobacco excise rate from February 1, 2009 from 31% to 38% of its retail price and applied specific excise only to
all products whether of white or clove tobacco, manufactured or handmade, to be taxed at the same rate and tiers to be reduced from
three to two. This should help to limit the illicit trade.
Conclusions
The estimation of illegal domestic cigarettes and net smuggling together amounted to at least 23-31 billion sticks per year or 10-14%
of cigarette consumption The revenue loss ranged between Rp 2.7 Trillion and Rp 3.5 trillion {US $ 327-409 Million} in 2002-2004,
representing between 9% and 13% of tobacco excise revenue. If there was under reporting of consumption in the surveys, this illicit
trade and revenue loss could be considerably underestimated.
Policy conclusion
In order to reduce the illicit production and smuggling of cigarettes, the government needs to enforce the law with stricter monitoring
and imposition of stronger penalties. These need to be done in the light of the significant tax revenue to be gained if smuggling and
illegal production is minimized, and because it would improve the health and life expectancy of the population. Other ways to reduce
illicit trade include limiting duty free sales, imposing regulation to use special labels and packaging, licensing of manufacturers,
importers, exporters, wholesalers, transporters, warehouses and retailers producing and distributing tobacco products. Cooperation
between neighboring countries within the region is also important as smuggling occurs largely across their borders.
6
2 http://www.tempointeraktif.com/hg/ekbis/2005/09/23/brk,20050923-67021,id.html
Acknowledgments
We would like to extend our appreciation and gratitude to Duke-SEATCA Capacity Building Project especially for Nannaphat “Im” Mathanee;
National Cancer Institute at the US National Institute Health; Fogarty International Center; Demographic Institute, Faculty of Economics,
University of Indonesia for their advice, support and help to ensure the accomplishment of the study: Fogarty International Center
Contact Information:
Abdillah Ahsan <[email protected]>, Diahhadi Setyonaluri <[email protected]>, Nurhadi Wiyono <[email protected]>
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15. Tackling the Illicit Trade in Tobacco, ASEAN inter-sectionals meeting, 4-7 March 2002
16. Tobacco Free Asia: Smuggling Activity in South East Asia in Ministry of Health 2005
17. http://www,tobaccofreeasia,net/MENU4/pdf%20Files/Media%20kits%20(pdf)/Smuggling,pdf
18. Townsend J,, Roderick P,Cooper J, 1994 ‘Cigarette smoking by socioeconomic group, sex and age: effects of price, income and
health publicity’ BMJ 309(6959) 923-927
19. Undang-Undang Republik Indonesia No, 11/ 1995
20. Undang-Undang Republik Indonesia No, 39/2005
21. www,trademap,org
22. www,fas,usda,gov/scriptsw/attacherep/attache_lout,asp
7
Table 1
Steps to Estimating the Cigarette Consumption, Indonesia, 1995-2005
Year
Smoking
Prevalence1
Population2
age 15 years +
million
Average
Consumption
(stick/day)3
Estimated
Consumption
( million sticks/year)
(1)
(2)
(3)
(4)
5= 2 x 3 x 4x365
1995
0.269
131.2933
10.55
136 036
1996
0.277
134.9674
10.63
145 200
1997
0.285
138.5265
10.72
154 597
1998
0.293
141.9717
10.80
164 218
1999
0.301
145.3030
10.88
174 054
2000
0.309
148.5210
10.97
184 098
2001
0.317
151.8193
11.05
194 588
2002
0.325
155.0195
11.13
205 302
2003
0.334
157.9013
11.22
215 933
2004
0.342
160.4920
11.30
226 481
2005
0.350
162.9317
11.38
237 115
1Estimated using trend analysis through regression method where 2001 as a base period.
2 Central Boards of Statistics, 1995
3 Estimated using trend analysis through regression method where 2001 as a base period.
8
Table 2
Estimated consumption of cigarettes (million sticks) in Indonesia, 1995-2004 assuming different
levels of under reporting
Survey
Year
Method
Consumption
Underreporting
Consumption
5%
10%
15%
Production
(P)
Imports
(M)5
Exports
(X)5
Tax Paid
Sales
(P+M-X)
1995
136 036
142,838
149 640
156 441
200 180
294
21 175
179 299
1996
145 200
152 461
159 721
166 981
216 420
90
19 225
197 285
1997
154 597
162 327
170 056
177 786
227 339
84
23 090
204 333
1998
164 218
172 428
180 639
188 850
227 268
16
17 080
210 204
1999
174 054
182 757
191 459
200 162
226 649
121
11 500
215 270
2000
184 098
193 303
202 508
211 713
231 213
400
16 052
215 561
2001
194 588
204 317
214 047
223 776
226 638
206
22 220
204 625
2002
205 302
215 568
225 833
236 098
198 353
29
18 429
179 953
2003
215 933
226 730
237 526
248 323
201 261
24
16 056
185 229
2004
226 481
237 805
249 129
260 453
218 615
20
15 000
203 635
Note : Cigarettes production is based on excise ribbon order include hand-made clove cigarettes (SKT), machine-made clove cigarettes (SKM), white cigarettes (SPM),
cigars, and cornhusk cigarettes. Source : TCSC, Source:
5.http://www.fas.usda.gov/scriptsw/attacherep/attache_lout.asp
2007
Table 3
Estimated Number of Illicit Cigarettes (million sticks) assuming different levels of under reporting in
Indonesia, 1995-2004
Number of Illicit cigarettes (millions)
Year
0%
Underreporting
5%
Underreporting
10%
Underreporting
15%
Underreporting
1995
(43 262)
(36 461)
(29 659)
(22 857)
1996
(52 084)
(44 824)
(37 563)
(30 303)
1997
(49 735)
(42 006)
(34 276)
(26 546)
1998
(45 986)
(37 775)
(29 565)
(21 354)
1999
(41 215)
(32 512)
(23 810)
(15 107)
2000
(31 463)
(22 258)
(13 053)
(3 848)
2001
(10 036)
(306)
9 422
19 152
2002
25 349
35 614
45 879
56 144
2003
30 704
41 500
52 297
63 094
2004
22 846
34 170
45 494
56 818
9
Table 4
Government Revenue Loss due to Illicit Cigarettes (assuming no underreporting) Indonesia, 2002-2004
Illegal
Domestic
Cigarette
Scenarios (million
sticks)
Weighted
Smuggling Weighted
Average
In
Average
Imported
(million Domestic
Price
sticks)
Price (Rp)
(Rp)
1
2
3
4
VAT
%
5
Revenue Loss (Rp)
Imported
Average
Excise
Domestic
Rate for Illegal Domestic
Excise
White
Smuggling In
Cigarettes
Rate (%)
Cig.(%)
(millions)
6
Total
7
8=1*3*(5+6)
9=2*4*(5+7)
10=8+9
2002
Scenario 1
[50:50]
12 674.667
12 674.667
286
259
0.084
0.31
0.4
1 428 232.198
1 588 845.581
3 017 077.779
Scenario 2
[60:40]
15 209.601
10 139.733
286
259
0.084
0.31
0.4
1 713 878.638
1 271 076.465
2 984 955.102
Scenario 3
[70:30]
17 744.534
7 604.800
286
259
0.084
0.31
0.4
1 999 525.077
953 307.348
2 952 832.426
Scenario 4
[80:20]
20 279.468
5 069.866
286
259
0.084
0.31
0.4
2 285 171.516
635 538.232
2 920 709.749
Scenario 5
[90:10]
22 814.401
2 534.933
286
259
0.084
0.31
0.4
2 570 817.957
317 769.116
2 888 587.072
Scenario 6
[100:0]
25 349.334
-
286
259
0.084
0.31
0.4
2 856 464.396
-
2 856 464.396
2003
Scenario 1
[50:50]
15 352.096
15 352.096
286
259
0.084
0.31
0.4
1 729 935.634
1 924 477.400
3 654 413.034
Scenario 2
[60:40]
18 422.515
12 281.677
286
259
0.084
0.31
0.4
2 075 922.761
1 539 581.920
3 615 504.682
Scenario 3
[70:30]
21 492.935
9 211.257
286
259
0.084
0.31
0.4
2 421 909.888
1 154 686.440
3 576 596.328
Scenario 4
[80:20]
24 563.354
6 140.838
286
259
0.084
0.31
0.4
2 767 897.015
769 790.960
3 537 687.975
Scenario 5
[90:10]
27 633.774
3 070.419
286
259
0.084
0.31
0.4
3 113 884.142
384 895.480
3498 779.622
Scenario 6
[100:0]
30 704.192
-
286
259
0.084
0.31
0.4
3 459 871.269
-
3 459 871.269
2004
Scenario 1
[50:50]
11 423.055
11 423.055
292
259
0.084
0.31
0.4
1 314 199.577
1 431 948.422
2 746 148.000
Scenario 2
[60:40]
13 707.665
9 138.444
292
259
0.084
0.31
0.4
1 577 039.492
1 145 558.738
2 722 598.230
Scenario 3
[70:30]
15 992.276
6 853.833
292
259
0.084
0.31
0.4
1 839 879.408
859 169.054
2 699 048.461
Scenario 4
[80:20]
18 276.887
4 569.222
292
259
0.084
0.31
0.4
2 102 719.322
572 779.369
2 675 498.692
Scenario 5
[90:10]
20 561.498
2 284.611
292
259
0.084
0.31
0.4
2 365 559.238
286 389 685
2 651 948.929
Scenario 6
[100:0]
22 846.109
292
259
0.084
0.31
0.4
2 628 399.154
-
2 628 399.154
Source : Authors Calculation
10ILLICIT CIGARETTES IN INDONESIA
-
Table 5
Percentage of Revenue Loss due to Illicit Cigarette to Tobacco Excise Revenue, Indonesia, 2002-2004
Year
Domestic Illegal Cigarette
Net Smuggled In
Total Illicit Cigarette
Revenue
Loss
(Rp, T)
Tobacco
Excise
Revenue
(Rp, T)
% of
Loss
Revenue
Loss
(Rp, T)
% of
Loss
Revenue
Loss
(Rp, T)
% of
Loss
2002
2.6
22.9
11.4
0.3
1.3
2.9
13
2003
3.1
25.9
12.1
0.3
1.3
3.5
13
2004
2.4
28.6
8.3
0.3
0.9
2.7
9
Source : Authors Calculation
Table 6
Export import discrepancy between cigarette imports recorded by Indonesia and exports recorded by
Indonesia’s exporting partners, in Thousand USD, 2003-2006
Exporters
2003
E
I
2004
D
E
I
2005
D
E
I
2006
D
E
I
D
Singapore
10011
0
10011
14616
2
14614
11060
46
11014
8147
59
8088
China
3790
0
3790
3864
0
3864
4076
0
4076
5415
0
5415
Malaysia
1899
37
1862
643
7
636
1087
2
1085
1667
76
1591
Republic of Korea
956
65
891
1726
125
1601
2927
229
2698
1068
210
858
Philippines
59
0
59
431
0
431
1937
0
1937
2256
0
2256
Hong Kong (SARC)
226
48
178
310
75
235
3304
85
3219
6537
87
6450
United Kingdom
0
109
-109
1
0
1
0
0
0
186
1
185
Viet Nam
89
0
89
2985
0
2985
0
0
0
0
Switzerland
9
9
0
7
2
5
14
3
11
1
251
-250
Japan
0
0
0
62
62
0
52
0
52
10
82
-72
Others
45
40
5
93
13
80
370
736
-366
795
72
723
‘World
17084
308
16776
24738
286
24452
24827
1101
23726
26082
838
25244
% of under-invoicing
of total Indonesia
import
98.20
98.84
95.57
96.79
Note: E=Exports reported by exportingr countries, I = Imports reported by Indonesia, D=Export Import Discrepancy
11
Mr. Abdillah Ahsan - Demographic Institute - Faculty of Economics,
University of Indonesia and SITT Indonesia Coordinator
Ms. Titissari - Demographic Institute - Faculty of Economics, University of Indonesia
Dr. Ulysses Dorotheo - SITT Project Director
Ms. Raphaella Prugsamatz - SITT Project Coordinator
Ms. Jennie Lyn Reyes - SITT Project Coordinator
IndonesiaTaxReportCard.indd 1
6/17/10 11:18 PM
Prevalence of tobacco use
Southeast Asia Initiative on Tobacco Tax
Over the past decade and a half, there has been a high and steadily increasing trend of cigarette consumption among
both men and women in Indonesia (Figure 1). According to the Indonesian Tobacco Sourcebook (estimate for smoking
among family members), there were about 57 million Indonesians smoking in 2004. Although males remain to be the
main consumers of cigarettes, consumption among women increased significantly in recent years, with almost a 300%
increase from 1.3% in 2001 to 5.1% in 2007.1
Figure 1: Prevalence of tobacco consumption in Indonesia from 1995 – 20072
Source: National Socio Economic Survey 1995, 2001 and 2004; and Basic Health Survey 2007
These increasingly high rates of smoking prevalence should be a cause for concern, as they contribute significantly to
early deaths of smokers, rising health costs, and decreased work productivity.
Average retail price
The most popular local brand in Indonesia is Sampoerna A Mild 16, which costs Rp. 10,500 (USD 1.14) per pack
(USD 1 = IDR 9,200). Esse Lights 20, the most popular imported brand, costs Rp. 13.500 (USD 1.46) per pack.
The change in nominal and real prices of cigarettes (kreteks and white) between 1970 and 2005 is illustrated
in Figure 2. While nominal prices increased rapidly after the 1997-1998 regional economic crisis, real cigarette
prices remained largely unchanged between 1970 and 2005, with only a slight increase in real prices in 2002
that corresponded with a decline in per capita domestic consumption in the same period. However, by 2005,
consumption was again on the rise, corresponding with a relative decline in real prices and absence of tax increases.
Figure 2: Cigarette price trends in Indonesia from 1970 – 2005 (per pack, in Rp.)3
Source: Ahsan et al, 2008, Tobacco Control Country Study Indonesia, Research Report: Demographic Institute – Faculty of Economics, University of Indonesia
2
Indonesia Tobacco Tax Report Card, June 2010
6/17/10 11:18 PM
Government revenue from tobacco tax
While there appears to be a steady increase in government revenue generated from tobacco business activities from
1990 to 2008 (Figure 3), when compared with the total government revenue, the percentage of tax revenue from
tobacco has not increased significantly over time (4% in 1990 to 5.2% in 2008).
Interestingly, when tobacco tax revenue was at its highest percentage in 2002 and 2003, contributing 7.73% of the total
tax revenue, this also corresponds to the decline in cigarette consumption shown in Figure 2. This empirical finding
refutes the argument that any decrease in tobacco consumption will negatively affect the tax revenue of Indonesia. On
the contrary, it validates the growing research studies that demonstrate an inelastic demand toward cigarettes and how
increasing tobacco tax is a win-win solution: this will decrease tobacco consumption and at the same time increase the
tax revenue of the country. This should encourage the government to increase its tobacco tax revenue by increasing
its tax rates.
Figure 3: Tobacco excise tax revenue in Indonesia from 1990 – 2008 (in Rp. Billion)4
Source: State Budget Note 1990-2007 and Custom and Excise 2009
Health costs of tobacco
With the high number of smokers in Indonesia, it is clear that there is a significant amount of health costs involved
in treating smoking-related diseases and illnesses. An economic analysis of tobacco use in Indonesia (Kosen, 2004)
points out that in 2001 Indonesia saw a total consumption cost of tobacco amounting to Rp. 127.4 Trillion. This figure
includes the use of tobacco products, medical bills for sicknesses involving tobacco use, and disabilities and early
deaths caused by tobacco use. Notably, this cost is 7.5 times the tax revenue generated from tobacco in the same year,
which was only Rp. 16.5 Trillion.5
Data (Tobacco Sourcebook) also shows that out of the 57 million smokers in 2004, only 4.1% has managed to stop
smoking, a fact that underscores the strong addictiveness of smoking.
3
6/17/10 11:18 PM
Description of the current tobacco tax system
Tobacco taxes in Indonesia are subject to individual brands, so the amount of tax generated by tobacco will be linear
to the number of brands that use it. The tax amount will also depend on the type of tobacco and the companies that
produce tobacco products.
Through PMK No. 203/PMK 011/2008, the Treasury Secretary made significant changes in taxes for tobacco products
in Indonesia, some of which are summed up in Table 1 and detailed in Table 2.
Table 1 : Changes in the taxation system for tobacco products in Indonesia from 2008 – 20096
NO.
MATERIAL
2008
2009
1
Tax tariff system
Combination (ad valorem and specific)
Specific
2
Specific tariff
MMC, HC, WHC, FHC
All HT
3
Categories of MMC and WMC
Three classes
Two classes
4
TIS categories
Three classes
No classes
5
WHC categories
KLB & KLM
HC
6
WFHC categories
KLB & KLM
WFHC
7
HT for employees and third party
HJE = 50% HJE normal
Nulled
8
Export tariff incentive
Normal tariff minus 4%
Nulled
Source : Customs Agency, 2009
*Note: Harga Jual Eceran (HJE) = retail price; HT / TC = Tobacco Commodity; KLB / KLM = hand-rolled clove cigarette using cornhusk leaf as
wrapper; TIS = Tembakau Iris (sliced tobacco)
The changes include
•
a shift from applying both ad valorem (percentage of the retail price per stick) and specific (specified amount
per stick) taxes to the application of only specific tax for all tobacco products;
•
the simplification of categories for Machine Made Clove Cigarette (MMC/SKM) and White Machine Made
Cigarette (WMC/SPM) from three categories to two: category 1 for producers that produce more than 2 billion
sticks per year and category 2 for those who produce less than 2 billion sticks per year.
•
categorizing White Handmade Cigarette (WHC/SPT) in the same tax category with Handmade Clove Cigarette
(HC/SKT);
•
categorizing the White Filtered Handmade Cigarette (WFHC/SPTF) in the same tax category as the Filtered
Handmade Clove Cigarette (FHC/SKTF); and
•
the nullification of export tariff incentives.
The new rules also introduced subcategories according to the retail price range of each category (three HJE range
subcategories for all production categories except HC category 3, which has only one HJE range) so producers can
choose which range to operate in.
On average cigarette excise tax has risen 15%, from 38% to 44% of HJE, with the highest increase (63%) in HC
category 3 and the lowest increase (7%) for MMC and WMC category 1. The average total tax burden of cigarettes,
including Value Added Tax (8.4%), is thus 52.4%.
While this policy was adopted to narrow the range of consolidated tax ranges, the HC/WHC category still has the lowest
tax rates compared to MMC and WMC, showing that the government still favors small producers. This pattern probably
exists as part of the government’s efforts to help small industries and their workers, but this reasoning is flawed as most
of the cigarette production and its tax revenue is generated by MMC category 1, and this “leveling of the playing field”
may actually be disadvantageous to small-scale producers. The widening tax cost for MMC, WMC and HC will also
lessen the effectiveness of this policy to control cigarette consumption. Thus there is a need for further simplification of
the tobacco tax system today.
4
6/17/10 11:18 PM
Table 2 : Tobacco Tax Tariff by Production Type and Category, Indonesia, 2009-2010
Cigarette Type
Machine Made
Clove Cigarette
(MMC)
White Machine
Made Cigarette
(WMC)
Handmade Clove
Cigarette
(HC) /
White Handmade
Cigarette
(WHC)
% of
HJE
HJE Range
(Rp)
Tax
(Rp)
% of
HJE
290
280
44
> 660
310
47
7%
3
600 - 630
280
46
8%
3
> 660
630 - 660
II
≤2 Billion
380 - 430
175
43
380 - 430
>600
290
48
>600
310
52
375 - 450
225
55
600 - 630
> 430
374 - 380
260
210
135
I
> 2 Billion
450 - 600
II
≤2 Billion
254 - 300
135
>590
200
375 - 450
>300
217 - 254
230
185
170
80
43
42
49
36
44
45
57
49
630 - 660
> 430
374 - 380
450 - 600
>300
254 - 300
34
217 - 254
34
>590
300
230
195
155
275
200
165
105
215
7%
53
10%
41
15%
52
20%
48
67
3
5
11%
5
5
7%
3
22%
10
9
18%
10
45
31%
11
29
10%
3
60
36
22%
8%
11
3
150
26
550 - 590
>379
90
24
>379
105
28
17%
4
336 - 349
90
26
20%
4
520 - 550
>500 Million
to ≤2 Billion
III
≤ 500 Million
I
> 2 Billion
630 - 660
II
≤2 Billion
380 - 430
349 - 379
336 - 349
234
>660
600 -630
>430
374 - 380
130
24
80
22
40
17
75
290
280
260
210
175
135
22
44
43
42
49
43
36
38
520 - 550
349 - 379
234
165
47
550 - 590
II
Average
Increase
Points
(%
point)
Tax
(Rp)
> 2 Billion
> 2 Billion
%
Increase
HJE
Range
(Rp)
I
I
Filtered Handmade
Clove Cigarette
(FHC) / White
Filtered Handmade
Cigarette
(WFHC)
2010
(PMK 181/PMK 011/2009)
145
95
27
26
12%
3
19%
4
65
28
63%
11
630 - 660
300
47
7%
3
>430
230
53
10%
5
374 - 380
155
41
15%
5
>660
600 -630
380 - 430
310
280
195
47
46
48
44
7%
Production
Category
2009
(PMK 203/PMK. 011/2008)
8%
11%
15%
3
3
5
5
How tobacco tax is calculated
Example : How much is HJE for Sampoerna A Mild 16 (sticks)?
HPP/ PCP (Production Cost Price) includes Producer Profit and Profit for distributors, agents, and retailers, i.e. HPP =
Base Price + Producer Profit + Profit for distributor, agents and retailers. Producers are required to declare this value
to the government.
Assuming that
•
•
•
HPP = Rp. 5000
Excise rate = 310 per stick
VAT = 8.4%
HJE = HPP + VAT + specific excise tax
HJE = Rp. 5,000 + (8.4%*HJE) + (Rp. 310*16)
= Rp. 5,000 + (8.4%*HJE) + Rp. 4,960
= Rp. 9,960 + (8.4%*HJE)
HJE – 8.4% HJE
91.6% HJE
HJE
HJE
If HPP = Rp. 5,000, then nominal tax = Rp. 5,873.62.
Excise tax burden as % of HJE
= ((310*16) / 10,873,62) * 100% = 45.61% of HJE
Total tax burden (VAT + excise) as % of HJE
= (5,873.62 /10,873.62) * 100% = 54.01% of HJE
= Rp. 9,960
= Rp. 9,960
= Rp. 9,960 / 91.6%
= Rp. 10,873.62
5
6/17/10 11:18 PM
Description of the process for tobacco tax to be imposed and increased
State revenue target from tobacco excise  MOF estimate using recent excise rate à increase and/or simplify
tobacco excise to reach the target  all have to syncronize with Tobacco Excise Roadmap based on the Tobacco
Industry Roadmap
Early in 2007, the Government of Indonesia led by the Ministry of Industry released “The Roadmap of Tobacco Products
Industry and Excise Policy”, whose three aims are listed in Table 3.
Table 3 : Government timetable based on the Tobacco Industry Roadmap
No.
Period
Priority Target
1.
2007-2010
Priority on employment, government revenue and health
2.
2010-2015
Priority on government revenue, health and employment
3.
2015-2020
Priority on health, employment and government revenue
It is proposed to achieve these targets by increasing cigarette production to only 260 billion sticks by 2020. The plan is
supported by the Ministry of Manpower and Transmigration, the Ministry of Agriculture, and the cigarette manufacturers
associations (GAPPRI and GAPRINDO).
While the government states that this roadmap is in line with the philosophy of implementing excise tax to reduce
consumption and promote healthy communities, this plan is flawed in several ways.
The tobacco excise tax system could be simplified by eliminating the production scales, using a uniform tax, and
applying comparable increases for all products, all at a much more rapid pace than outlined in Table 4. At present, the
production scales offer tobacco firms a number of different ways to avoid the highest tax brackets, legally or otherwise,
which reduce the impact of tobacco tax increases on revenue generation and social welfare. A larger uniform specific
tax would greatly simplify administration, protect revenues from industry pricing competition, and facilitate revenue
forecast. In addition, imposing the same specific tax would be effective in discouraging cigarette consumption assuming
that it is large enough to offset income growth and automatically adjusted for inflation annualy. Comparable increases
in taxes on all tobacco products are needed to minimize substitution between tobacco products.
Table 4 : Roadmap of Tobacco Excise Tax System in Indonesia
Cigarette
Type
Machine
Made
Kretek
Cigarette
SKM
White
Cigarette
SPM
Production
Category
I
II
I
II
Hand
Rolled
Kretek
Cigarette
SKT
I
II
III
6
Range of
Retail Price (HJE)
2009
2010
1
1
2
Excise Rate (specific)
2011
2012
2013
1
1
1
1
2
2
2
2
3
3
3
1
4
4
3
3
2
5
5
4
4
3
6
6
1
7
7
5
5
2
8
8
6
6
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8
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2015
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6/17/10 11:18 PM
A short profile of the tobacco industry
Figure 4 : Cigarette production 1960 – 2005
Figure 5 : Market share of Indonesia’s Cigarette Industry, 20098
Source : Barber et al (2008)
Source : Koran Neraca, 9 June 2009
Cigarette production in Indonesia has climbed steadily through the years (Figure 4), and the growing Indonesian
cigarette market is currently ruled by three major companies (Figure 5); Philip Morris International (PMI) - HM
Sampoerna Tbk (29% market share), Gudang Garam (21.1%), and Djarum (19.4%). Together, these companies
control 70% of the cigarette market.7
Conclusions and recommendations
The tax increase already imposed has not yet effectively reduced the demand for tobacco, and therefore the price
increase on cigarettes should be intensified (implement the maximum legally allowable excise tax rate for all tobacco
products: 57% of Government Retail Price (HJE)).
From the data and analysis of Susenas in 2006, about 63% of all Indonesian households (about 35 million families)
reported tobacco expenses, indicating at least one smoker in most households in Indonesia. Furthermore, the data shows
that tobacco and betel expenses are higher among lower income families than among families with higher incomes.
Based on a cigarette price elasticity of -1.696% for lower-income citizens compared to that of -0.409% for higherincome citizens, we would expect Indonesians with lower incomes to be more sensitive to cigarette price increases than
those with higher incomes; i.e. when faced with a higher cigarette price, Indonesians with lower incomes would more
likely decrease their tobacco consumption and hopefully switch their spending to other consumer products. Therefore
policies to increase the prices of tobacco will ultimately lower tobacco consumption for lower income families.
In addition to raising taxes and prices, the tax system should be simplified to reduce the price gap between the most
expensive and the cheapest cigarettes. This is important to reduce the substitution effect between brands of cigarettes
that could lead to increased cigarette demand. This simplification of tobacco taxation system could be done by :
• eliminating production tiers
• using a uniform specific tax
• implementing tax increases across all tobacco products, and
• automatically adjusting the specific tax for inflation
The government needs to consider carefully how it will effectively use its revenues from tobacco tax. One of the
proposed uses is to direct those funds toward public health. Given the expensive health costs brought about by
tobacco consumption, the allocation for public health needs to be optimized vis-à-vis other proposed uses.
References
1.
2.
3.
4.
5.
6.
7.
8.
Ministry of Health, Indonesia. (2004). The Tobacco Sourcebook: Data to support a national tobacco control strategy.
National Socio Economic Survey 1995, 2001 and 2004; and Basic Health Survey 2007.
Ahsan, A. et al, 2008, Tobacco Control Country Study Indonesia, Research Report: Demographic Institute – Faculty
of Economic University of Indonesia.
Ministry of Finance. State Budget Note 1990-2007.
Kosen, S. (2004). An Economic Analysis of Tobacco Use in Indonesia. National Institute of Health Research &
Development.
Ministry of Finance. Custom and Excise 2009.
Barber, S., Adioetomo, S.M., Ahsan, A., Setyonaluri, D. (2008). Tobacco Economics in Indonesia. International
Union Against Tuberculosis and Lung Disease.
Koran Neraca, 9 June 2009.
7
6/17/10 11:18 PM
The Southeast Asia Initiative on Tobacco Tax (SITT) is SEATCA’s project to institute effective tax increases and to allow for
sustainable funding mechanisms for tobacco control in Indonesia, Cambodia, Lao PDR, Philippines and Vietnam, in line with
Article 6 of the WHO Framework Convention on Tobacco Control.
6/17/10 11:18 PM
Tobacco Economics in Indonesia
Sarah Barber
Sri Moertiningsih Adioetomo
University of California, Berkeley
Faculty of Economics, University of Indonesia
Abdillah Ahsan
"Implementing the maximum legally allowable tobacco
tax rates could prevent between 1.7 and 4.0 million
tobacco-related deaths among smokers and generate
additional revenues of US$ 3.2 to 6.5 billion. Doubling the
tobacco tax could increase employment by more than
one quarter of a million jobs."
One of a series of reports on tobacco taxation — a key component of the MPOWER package — funded by the
Bloomberg Philanthropies as part of the Bloomberg Initiative to Reduce Tobacco Use.
Monitor tobacco use and
prevention policies
Protect people from
tobacco smoke
Offer
help to quit tobacco use
Warn
about the dangers
of tobacco
Enforce bans on tobacco
advertising, promotion
and sponsorship
Raise
taxes on tobacco
ISBN: 978-2-914365-40-6
International Union Against Tuberculosis and Lung Disease (The Union)
68 boulevard Saint Michel, 75006 Paris - FRANCE
Tel : +33-1 44.32.03.60, Fax : +33-1 43.29.90.87
email: [email protected]; web: www.iuatld.org
Suggested citation: Barber S, Adioetomo SM, Ahsan A, Setyonaluri D.
Tobacco Economics in Indonesia. Paris: International Union Against
Tuberculosis and Lung Disease; 2008.
Tobacco Economics in Indonesia
Executive Summary
1
I.
4
4
4
5
Background of the Study
Purpose and Scope of the Study
Data Sources
Data Gaps and Limitations
II. Introduction
Smoking Prevalence and Burden of Disease
Relationships Between Health and Economic Productivity
Market Failures: Inadequate Information About Health Risks and Addiction,
and Financial and Physical Costs Imposed on Nonsmokers and Society
Generating Government Revenue: Tobacco Price and Tax Measures
10
13
III. Tobacco Tax, Tariff, and Price Information
Tobacco Tax Structure
Cigarette Taxes and Prices
Affordability of Tobacco Products
Note About ad valorem and Specific Tax Systems
17
17
19
23
24
IV. Demand Studies
Studies Using Aggregate Data
Studies Using Household Data
Impact of an Increase in Tobacco Prices on Low-income Households
Impact of an Increase in Tobacco Taxes on Cigarette Consumption and
Government Revenue
27
27
29
30
V.
35
35
37
39
42
Industry Market Structure and Employment
Tobacco Farming
Market Structure of the Cigarette Industry
Tobacco Manufacturing
Studies Evaluating the Impact of Taxation on Employment
VI. Tobacco Tax Administration
Revenue from Tobacco Excise
Factors in Determining the Tobacco Tax Rates
Industry Responses to the Tobacco Tax System
Tax Administration, Counterfeiting, and Smuggling
6
6
8
31
46
46
46
53
55
Conclusions and Recommendations
59
Annexes
Acknowledgments
Bibliography
62
85
86
Executive Summary
Low real cigarette prices, population growth,
rising household incomes, and mechanization of the
kretek industry have contributed to sharp increases in
tobacco consumption in Indonesia since the 1970s.
The majority of tobacco users are smokers, and the
vast majority of smokers (88 percent) use kreteks, or
cigarettes made of tobacco and cloves. Smoking
prevalence is 34 percent, and 63 percent of men
smoke. Per capita adult tobacco consumption
increased by 9.2 percent between 2001 and 2004.
Given the delay of up to 25 years between the time of
smoking uptake and the onset of many chronic
diseases, the negative health effects of increases in
cigarette consumption are being seen only now. Up to
one-half of today’s 57 million smokers in Indonesia will
die of tobacco-related illnesses.
The vast majority of smokers (88 percent)
use kreteks, or cigarettes made of tobacco
and cloves.
Market failures exist for tobacco, including
imperfect information about health risks and the risks of
addiction. Some 78 percent of Indonesian smokers
started before the age of 19 years. Nicotine is highly
addictive; among children under 15 years who already
smoke, 8 out of 10 have tried to quit but were
unsuccessful. Unlike those who use other highly
addictive but illegal substances, however, smokers are
presented with many opportunities to purchase tobacco
and are constantly confronted with advertisements that
promote tobacco use as socially acceptable. Taxation
plays an important role in keeping prices high to prevent
uptake among children and adolescents, who did not
intend to start a lifetime addiction.
Smoking imposes costs on nonsmokers and
society. Health care costs for tobacco-related illnesses
in Indonesia could amount to between Rp 2.9 and 11.0
More than 97 million non-smokers in
Indonesia are routinely exposed to
secondhand smoke.
trillion per year (US$ 319 million and 1.2 billion). In
addition, secondhand smoke is carcinogenic. More
than 97 million nonsmokers are regularly exposed to
secondhand tobacco smoke. Households with smokers
dedicate 11.5 percent of monthly expenditures on
tobacco, and such high spending has serious welfare
implications. The national nutritional surveillance
system reported that paternal smoking predicts an
increased probability of short-term and chronic child
malnutrition.
The customs law states that excise should be used
to reduce consumption of tobacco products and control
their distribution because they are unhealthy. In
practice, the primary factor taken into consideration
when setting the tobacco tax rate is the annual revenue
target. The system continues to promote gaps in prices
between products, tobacco has become more
affordable over time, and smoking prevalence among
children has increased sharply. Cigarette prices and tax
rates in Indonesia are low relative to other countries,
and real cigarettes prices have remained stable since
the 1980s. The current tax rate (37 percent of sales
price) is low compared with the global benchmark of
70 percent, and the rates are below the maximum
allowable by law. The government “roadmap” intended
to create healthy communities and guide tobacco
excise policy could result in worse health outcomes by
Up to one-half of the 57 million smokers in
Indonesia today will die of tobacco-related
illnesses. Some 78 percent of Indonesians
started smoking before the age of 19 years.
2
| Tobacco economics in Indonesia
Six large hand-rolled and machine-made
kretek firms contribute some 88 percent of
total tobacco excise revenues.
encouraging higher consumption. There is no evidence
to indicate that reducing nicotine levels has any effect
on health outcomes.
Demand for tobacco products responds to
changes in price. Reaching the global benchmark of 70
percent through a specific, or primarily specific rather
than ad valorem, tax would have the greatest health
impact and could avert between 2.5 and 5.9 million
tobacco-related deaths. At the same time, the demand
for tobacco products is inelastic, or the percentage
reduction in demand is less than the percentage
increase in price. With a relatively small impact on the
tax base, this increase would contribute Rp 23.8 to 75.8
trillion (US$ 2.6 to 8.3 billion) additional revenue,
regardless of reduced sales volumes for cigarettes.
The impact of price and tax measures on health
and revenue depends on the structure of the market,
industry and consumer responses to tax and price
increases, and the implementation of the tax. The
current tobacco tax structure itself is complex, based
on the type of tobacco product, mode of production
(machine or hand-rolled), and industry production
scale. It has evolved over time to incorporate multiple
and sometimes conflicting goals, including not only
revenue generation but also employment and the
promotion of small industries. The policy has largely
acted to protect small firms by reducing demand for
products from large firms through increases in their
retail prices and tax rates.
71 percent of market share is held by
three companies.
From a revenue perspective, tobacco taxation is
relatively easy to administer given that six large handrolled and machine-made kretek firms contribute
some 88 percent of total revenues. However, the
tobacco manufacturing industry has responded to the
tiered tax rates by firm production scales in a number
of ways. The tiered rates allow firms to incur lower
taxes by reducing their production levels to fall within
lower tax brackets, establishing new small firms, or
buying up small firms or contracting production to
them. In effect, the production tiers in the tobacco tax
system offer a number of different ways to legally avoid
the highest tax brackets, thereby substantially
reducing the impact of a tax increase on revenue
generation and social welfare. In addition, the industry
has strong lobbying power to influence policy because
71 percent of market share is held by three companies.
In the past, firms have been willing to absorb tax
increases and reduce their margins to maintain or
increase market share. It is notable that the 2008
regulation imposed a large, nearly uniform specific tax
for all tobacco products and this represents a major
change from the previous tax scales. The impact of this
change should be monitored closely.
Cigarette manufacturing has contributed
less than 1 percent of total national
employment since the 1970s.
Changes in tobacco tax and price would not be
expected to have a great impact on tobacco and clove
farming nationally for several reasons. Less than
2 percent of Indonesian farmers are involved in tobacco
cultivation, and most tobacco and clove farmers are
concentrated in specific geographic areas. Both tobacco
and clove farmers already have very diverse crop
holdings and engage in other farm and non-farm
enterprises as a part of income generation activities. In
Central and East Java, tobacco cultivation amounts to
1.8 and 0.5 percent of total arable land, respectively.
Sarah Barber, Sri Moertiningsih Adioetomo, Abdillah Ahsan, Diahhadi Setyonaluri |
Tobacco manufacturing is also a regional rather
than a national concern. Contrary to popular
perception, tobacco manufacturing is not a major
employer in Indonesia at a national level, and ranks 48
out of 66 sectors in contributing to total employment.
The contribution of cigarette manufacturing to total
manufacturing employment has declined steeply over
time from 28 percent in 1970 to less than 6 percent
today, and its contribution to total employment has
remained less than 1 percent since the 1970s. The
number of cigarette firms has fluctuated over time;
however, their geographic distribution was remarkably
concentrated in 14 districts between 1960 and 1990.
The vast majority of these firms are located in Central
and East Java, where tobacco manufacturing is
estimated to account for 2.0 and 2.9 percent of total
employment, respectively.
Estimating the economic impact of a reduction in
tobacco spending requires a consideration of how
spending on tobacco is reallocated to other
commodities or investments. Research simulating a
doubling of the tobacco tax reports a net positive
increase in employment by 0.3 percent (281,135 jobs).
This result is primarily because tobacco farming and
manufacturing are not ranked high in terms of overall
economic output, employment, and wages. Household
tobacco expenditures are large; diverted to other more
productive sectors of the economy, such spending
could stimulate growth and have a positive net
economic impact.
The tobacco excise system should be
simplified by eliminating the production tiers
and applying a uniform specific tax.
3
Tax levels that achieve the global
benchmark of 70 percent of sales price
through a specific, or primarily specific
rather than ad valorem, tax would have
the greatest health impact.
The report concludes with five recommendations.
First, the tobacco excise system should be simplified by
eliminating the production tiers, applying a uniform
specific tax, implementing tax increases across all
products, and automatically adjusting the specific tax
for inflation. Specific excises that impose the same tax
per cigarette are more effective in discouraging
cigarette consumption. Tax increases that aim to reduce
consumption need to be higher than the general rate of
inflation and large enough to offset income growth.
Second, the maximum legally allowable excise tax rate
for all tobacco products should be applied to reverse the
trend of increasing cigarette affordability and to start to
address the significant burden of tobacco-related
illnesses. Tax levels that achieve the global benchmark
of 70 percent through a specific, or primarily specific
rather than ad valorem, tax would have the greatest
health impact. Third, the employment generation goal
of the tobacco tax system should be re-examined to
determine whether other programs or policies would be
more effective in promoting employment. Fourth, the
tax rates should be set at a level to correct for market
failures related to lack of information and addiction,
and to reflect the true costs of smoking to individuals
and society. Lastly, it is recommended that the 2
percent earmarked excises be used effectively to
support local economies that could be negatively
affected by reductions in tobacco consumption, and to
implement tobacco control programs more broadly.
4
I. Background of the Study
Purpose and Scope of the Study
This study aims to systematically review existing
studies to provide a comprehensive report about the
economic aspects of tobacco in Indonesia. The paper
first describes why the economics of tobacco is
important and why governments intervene in the
tobacco market. In addition to achieving revenue goals,
governments intervene in the tobacco market to address
the burden of tobacco-attributable diseases, to reduce
the negative consequences of tobacco consumption on
economic productivity and poverty, and to correct
market failures related to lack of information and
addiction, particularly among children and adolescents.
Some basic social and demographic aspects of tobacco
consumption are also discussed in the second chapter.
The third chapter describes historic and current
tobacco tax structure and prices in Indonesia, and
compares data on cigarette prices, taxes, and
affordability with that of other countries. The fourth
chapter reviews existing studies using aggregate or
household data about the demand for cigarettes. This
chapter also presents the results of simulations that
predict the impact of tax increases on household tobacco
spending, cigarette consumption, tobacco-attributable
mortality, and government tax revenues. The fifth
chapter describes the structure of the tobacco industry,
tobacco leaf processing and manufacturing, production,
trade, and employment. It also presents the results of
studies that simulate the impact of tobacco tax increases
on employment and economic output. The sixth chapter
describes tax excise revenues, factors related to
determining the tobacco tax rates, operational aspects of
This study aims to systematically review
existing studies to provide a comprehensive
report about the economic aspects of
tobacco in Indonesia.
tobacco tax implementation, industry responses to the
increases, counterfeiting, and smuggling. The report
concludes with policy recommendations.
Data Sources
Prevalence and consumption are based on data
from large-scale surveys that are representative of the
population, including the national socioeconomic
surveys (SUSENAS) collected by the Central Bureau of
Statistics and the Indonesian Family Life Surveys
(IFLS). Data updates commissioned for this study
include household level consumption and tobacco
expenditures, age at uptake, employment, and industry
market share.1 The consumer price index for tobacco is
from the Indonesian Central Statistical Bureau (BPS).
The tax rates are estimated for the three main types of
cigarettes based on household data about consumption
and prices, industry figures for total production by
type of cigarette, and tax directorate statistics about
excise revenues by type of cigarette. An opportunistic
survey of cigarette prices among street vendors and
retailers in Jakarta was commissioned for this paper,
and the details of this survey are published separately.2
Historic and current excise tax and price structure for
tobacco products are sourced from published
Ministerial Decrees from the Excise Tax Directorate,
Ministry of Finance. Figures about excise tax revenues
are sourced from published reports of the Ministry of
Finance. Indonesian rupiah values are expressed in
2007 US dollar values unless otherwise indicated.
We summarize previous analytical work about the
demand for cigarettes and simulations of tax increases
on consumption and revenues. This review was
informed by two published papers of research in
Indonesia and the Southeast Asian region.3 The first,
“An Overview of the Tobacco Control Economic
Literature and Evidence for Indonesia” was conducted
by Research Triangle Institute and critiqued most of
the studies cited here. The second, “Higher Tobacco
Prices and Taxes in Southeast Asia: An Effective Tool
to Reduce Tobacco Use, Save Lives and Generate
Revenue” was commissioned by the World Health
Organization (WHO) and the World Bank to inform
regional price and tax policies. Each of the individual
studies is cited in the endnotes.
Industry structure and market share were collected
from market research groups and published industry
sources. Updates on agricultural and manufacturing
production and trade were sourced from the
Indonesian BPS and the U.S. Food and Agricultural
Organization (FAO). Employment figures were
sourced from the Indonesian BPS. Cited are two
studies that examine the impact of changes in tax on
employment. The first was previously published by the
United States Agency for International Development
(USAID).4 The second study commissioned for this
report examines the implications of a tax increase on
employment. Data used for this study include the
SUSENAS national household survey data and
published reports of the input-output analysis of the
impact of a tobacco tax increase on employment. This
study expands on a prior study conducted by the
Demographic Institute, Faculty of Economics,
University of Indonesia.5
A structured interview was commissioned for this
report to collect data about tobacco tax administration
and implementation. The interview was carried out by a
research team at the Demographic Institute, Faculty of
Economics, University of Indonesia, and the key
informants were government officials at the Excise Tax
Directorate and the Fiscal Analysis Bureau, Ministry of
Limited data exist about marketing and
advertising; this represents an important area
for future work, particularly the subject of
marketing to youth.
Finance. The findings are summarized here, and the full
structured interviews are published separately.6
Data Gaps and Limitations
Data about the tobacco-attributable disease
burden are taken from existing studies. More
comprehensive analyses of disease burden and health
care costs are the focus of a separate research plan
funded by the U.S. National Institutes of Health
Fogarty International Center (University of Indonesia
and University of California, Berkeley) in 2008.
Additional research is also being planned to analyze
cigarette demand among adults and children, and this
report focuses only on previous studies conducted in
Indonesia that have produced consistent results. This
report does not comprehensively assess the povertyrelated aspects of tobacco consumption, which is the
focus of future research by the Demographic Institute,
University of Indonesia. The report also does not cover
marketing of tobacco products. Limited data exist
about marketing and advertising; this represents an
important area for future work, particularly the subject
of marketing to youth.
Endnotes for Chapter 1
1
2
3
4
5
6
5
Ahsan A, Wiyono N, Setyonaluri D, Prihastuti D, Yudhistira MH, Sowwam M. Tobacco control country study. Demographic Institute,
Faculty of Economics, University of Indonesia, 2007.
Ahsan A, Wiyono N, Setyonaluri D, Prihastuti D, Yudhistira MH, Sowwam M. An opportunistic survey of retail prices for cigarettes.
Processed, 2007.
Ross H. An overview of the tobacco control economic literature and evidence for Indonesia. Open Society Institute and Research
Triangle Park, 2005; Guindon E, Perucic A-M, Boisclair D. Higher tobacco prices and taxes in South-east Asia: An effective tool to
reduce tobacco use, save lives and generate revenue. World Bank, Health, Nutrition and Population Discussion Paper. Economics
of tobacco control paper No. 11, 2003.
Marks S. Cigarette excise taxation in Indonesia: An economic analysis. Partnership for Economic Growth, BAPPENAS and USAID,
July 2003.
Ahsan A, Wiyono N. The impact analysis of higher cigarette price to employment in Indonesia. Demographic Institute, Faculty of
Economics, University of Indonesia, 2007.
Ahsan A, Wiyono N, Setyonaluri D, Prihastuti D, Yudhistira MH, Sowwam M. Implementation of tobacco tax. Demographic Institute,
6
II. Introduction
This chapter describes why the economics of
tobacco is important and why governments intervene
in the tobacco market. In addition to achieving revenue
goals, governments intervene in the tobacco market to
address the burden of tobacco-attributable diseases, to
reduce poverty, to correct market failures related to
lack of information and addiction, and to protect
children and adolescents.
Smokers are predominantly male, and 63 percent
of men smoke. The vast majority of smokers use
kreteks, which carry the same health risks as other
tobacco products. Tobacco consumption kills at least
200,000 people annually in Indonesia, and tobacco use
has serious negative health impacts for nearly every
organ in the body. For every eight smokers that die
from active smoking, one nonsmoker dies from
exposure to secondhand smoke. This ratio represents at
least 25,000 deaths from secondhand smoke in
Indonesia. Through its negative health effects, tobacco
consumption contributes to lower economic
productivity through reductions in physical
functioning, lung capacity, and higher rates of illnesses.
Premature death among up to one-half of smokers is
likely to affect the relative size of the labor force, as well
as have an important long-term economic impact
through reductions in earnings and savings. High
household expenditures on tobacco have serious
welfare implications.
Tobacco price and tax measures are the most
effective way to reduce tobacco-related morbidity and
mortality. This is because the demand for tobacco
responds to changes in price. At the same time,
demand is inelastic, or the percentage reduction in
demand is less than the percentage increase in price. In
other words, many smokers would continue to smoke,
even with higher tobacco prices. With a relatively small
impact on the tax base, an increase in tobacco taxes
will result in a net increase in total government
revenue from the tax — regardless of reduced sales
volume for cigarettes. Keeping tobacco prices high
through regular increases in tax, therefore, has proven
effective in generating both positive health outcomes
and increased government revenue.
Smoking Prevalence and Burden of Disease
Concern about the health and economic impact of
tobacco consumption in Indonesia has been relatively
recent. This is a reflection of the increases in living
standards and quality of life. In the 1960s, life
expectancy was 38 years; a child born today could
expect to live to 69 years.7 Whereas tobacco has been
consumed with betel or cloves for some time, few
people lived long enough to suffer its most severe
negative health consequences.
Although all tobacco products are harmful to
health, an increase in smoking could be expected to
have a broader range of serious health problems when
compared with chewing tobacco. Inhaling tobacco
smoke delivers high levels of nicotine to the brain very
rapidly.8 Smoking kreteks replaced chewing betel and
tobacco during the early to mid-1900s for many rural
men, and smoking became widespread after the
mechanization of the kretek filter in the 1970s.9
Cigarette production increased from about 38 billion
sticks in 1971 to more than 220 billion today.10 Low real
cigarette prices, population growth, and rising
household incomes contributed to a large increase in
smoking prevalence and consumption. There is a delay
of up to 25 years between the time of smoking uptake
and the onset of many chronic diseases. Therefore, the
negative health effects of rapid increases in cigarette
consumption since the 1970s to 1980s are being seen
only now. More recent data suggest that smoking
Kreteks are composed mostly of tobacco
(60–70 percent); therefore, they carry all of
the same health risks as other tobacco
products.
prevalence has continued to increase from 27 percent in
1995 to 34 percent in 2004.
own or pipe tobacco.12 A slightly higher percent of
youth (15 to 19 years) prefer white (tobacco only)
cigarettes (21 percent) (Annex 2.4). Kreteks are
composed mostly of tobacco (60 to 70 percent);
therefore, they carry all of the same health risks of
other tobacco products.13 In addition to cloves, kreteks
typically have a number of different additives in the
“sauce.” Mixed with tobacco, the additives help to
maintain the flavor of a particular brand over time.
While commonly used additives such as fruit and herb
extracts may be safe when ingested, the health effects
of burning and inhaling them are not known.14 The
eugenol in cloves is considered a possible human
carcinogen in itself; other substances hazardous to
health detected in kreteks include coumarin and
anethole.15 Similarly, white (tobacco only) cigarettes
also contain chemical additives to numb the throat,
mask the smell of secondhand smoke, and enhance the
addictive properties of nicotine.16 Unlike other
consumables and drugs, the chemical contents of
cigarettes (the “sauce” and additives) are unknown to
both consumers as well as the government regulatory
body, National Agency for Drug and Food Control
(Badan POM). The existing measurements of tar and
nicotine levels do not inform about specific additives or
Nearly all (97 percent) tobacco users in Indonesia
smoke cigarettes. Smokers are predominantly male,
although the prevalence of female smoking is increasing.
Some 53 percent of men smoked in 1995, compared with
63 percent in 2004. Smoking among women is
associated with social stigma in Java-Bali, although this
is changing with cigarette marketing towards women.11
Female prevalence increased from 1.7 percent to 4.5
percent during the same period (1995 to 2004, Annex
2.1). Rates of female smoking are higher in non-JavaBali; 10 percent of women in Papua smoke; and 9
percent of women in East Kalimantan do so (Annex 2.2).
In 1995, the poorest had higher rates of smoking
prevalence compared with the wealthiest using
household expenditure quintiles (Graph 2.1). However,
this gradient has largely disappeared. In 2004,
prevalence was lower among men within the highest
household wealth quintile but differs little across the
other four expenditure categories (Annex 2.3).
The vast majority of smokers (88 percent) use
kreteks, or tobacco-and-clove cigarettes, and a very
small segment of smokers in rural areas use roll-your-
Graph 2.1: Male Smoking Prevalence by Expenditure
Quintiles, 1995 and 2004
70
% of men that smoke
60
50
40
30
20
10
0
2004
1995
1 (poorest)
Source: SUSENAS.
2
3
7
4
5 (wealthiest)
Average
8
predict health outcomes. Current measures of tar and
nicotine are based on discredited testing methodology
that should no longer be used.17
Conclusive evidence over decades confirms that
up to one-half of smokers die as a result of their
addiction.18 While tobacco-attributable deaths are
projected to decline in high-income countries, they are
expected to double from 3.4 million to 6.8 million
annually in low- and middle-income countries.19
Cancers are responsible for one-third of these deaths,
and cardiovascular and chronic respiratory diseases
are each responsible for 30 percent of deaths. These
projections find that smoking will kill 50 percent more
people in 2015 than HIV/AIDS, and will account for
10 percent of all deaths globally. Estimates show that
tobacco consumption causes up to 200,000 deaths
annually in Indonesia.20 The main causes of tobaccoattributable mortality in Indonesia — similar to the
causes in global estimates — are heart diseases, stroke,
cancers, and respiratory illnesses, particularly chronic
obstructive pulmonary disease.21 It has been
demonstrated that tobacco use has serious negative
health effects for nearly every organ in the body.18
Secondhand smoke is carcinogenic to humans.22
Secondhand smoke kills about one nonsmoker for
every eight smokers that die from active smoking.23
Multiple studies have demonstrated increased risk of
serious diseases caused by exposure to secondhand
smoke. Nonsmoking women exposed to secondhand
smoke in the home have a 25 percent increased risk of
lung cancer, with longer exposure corresponding to
higher risk.24 Studies among nonsmoking Indonesian
women with smoking husbands demonstrated higher
risks of lung cancer compared with nonsmoking
women with nonsmoking husbands.25 Other studies
have demonstrated a 23 to 25 percent increased risk of
heart disease from exposure to secondhand smoke.26
Even low levels of exposure increase the risk of heart
attacks and heart disease.27 Significantly reduced
coronary flow velocity reserve has been reported in
nonsmokers after 30 minutes of exposure to
secondhand smoke, indicating loss of endothelial
function that leads to vascular diseases.28 This suggests
that even short periods of exposure to secondhand
smoke could have long-term negative health effects.
More than 97 million nonsmokers in Indonesia are
routinely exposed to secondhand smoke.29
Exposure to secondhand smoke leads to serious
illnesses for children, including a higher risk of sudden
infant death syndrome (SIDS), acute respiratory
infections, ear disease, and severe asthma.30 Among
school children in Jakarta and Java, between 76 and
82 percent report exposure to secondhand smoke in
public places.31 Some 70 percent of all Indonesian
children less than 15 years of age are regularly exposed
to secondhand tobacco smoke.32
Relationships Between Health and Economic
Productivity
Based on the established theories of health as a
form of human capital,33 Bloom and Canning describe
four ways in which health contributes to economic
prosperity.34 First, healthy people are physically and
cognitively stronger, leading to longer working hours,
fewer sick days, and higher productivity at work or in
school. Second, healthy people have longer life
expectancies. This creates incentives for investments
in health, education, and other forms of human capital.
Third, greater longevity induces higher levels of
retirement savings during working life. Foreign
investors look to economies with a healthy labor force.
Fourth, a healthier population reduces demand for
children via lower mortality rates. The changes from
Households with smokers spent on
average a share of 11.5 percent on
tobacco products, compared with 11.0
percent for fish, meat, eggs and milk
combined; 2.3 percent for health and 3.2
percent for education.
high to low mortality and fertility lead to increases in
the proportion of working age adults — a key
determinant of economic growth.
that the risk of death is high among smokers. Up to
one-half of smokers die of their addiction, and
approximately half of these deaths occur during
productive life before retirement (35 to 69 years),
resulting in at least 10 to 15 years of life loss.36 At the
household level, this implies a loss of earnings,
household savings, and investments. Early death of a
parent is likely to have long-term effects on the
education and living standards of his or her children.
Analyses of the national socioeconomic survey
(SUSENAS) demonstrate that the death of a parent
results in large reductions in child school enrollment
through higher drop-out rates.37
Whereas better health promotes a country’s
economic performance, the reverse is also true. Poor
health can inhibit economic growth. In the case of
tobacco, smoking reduces physical strength and lung
capacity. In addition to other serious long-term
conditions, tobacco consumption diminishes overall
immune function, which leads to higher rates of
general infections among smokers.35 Male smoking
prevalence is higher in rural areas compared with
urban areas (67 percent and 59 percent, respectively,
Annex 2.2). Reductions in physical functioning in rural
regions are likely to have an important impact on local
economies that rely on agricultural or manual labor.
Individual income lost from sick days is less likely to be
recovered from informal or agricultural employment.
Sizeable household expenditures on tobacco
products have serious welfare implications. In 2005,
households with smokers spent on average a share of
11.5 percent on tobacco products, compared with 11.0
percent for fish, meat, eggs, and milk combined; 2.3
percent for health; and 3.2 percent for education
(Table 2.1, Annex 2.5). Particularly for low-income
households, limited resources spent on tobacco could
reduce spending on health, food, education, or other
necessities.
Indonesia is now benefiting from a decline in
child mortality and fertility rates, which has
contributed to longer life expectancies and incentives
to save. However, studies across countries with longterm tobacco consumption consistently demonstrate
Table 2.1: Percent of Total Monthly Expenditures on Tobacco, Food, Health,
and Education for Households with Smokers, by Expenditures Quintiles, 2005
Household expenditure quintiles
Expenditure
category
2
3
4
11.9
12.3
12.4
11.7
9.2
11.5
Fish
5.6
6.1
6.2
6.0
4.9
5.7
Eggs and milk
2.6
3.0
3.3
3.6
3.8
3.3
Meat
1.0
1.6
2.1
2.5
2.9
2.0
Health
2.1
2.1
2.2
2.4
2.7
2.3
Education
1.8
2.6
3.0
3.6
4.9
3.2
Tobacco
1
(lowest)
Source: SUSENAS. Tobacco category excludes betel nut.
9
5
(highest)
Average
10
With the exception of households at the top of the
distribution that spend the lowest share, tobacco
expenditures are proportional throughout the
distribution of expenditures. Spending on tobacco
products increased slightly for the lowest and highest
quintiles between 2002 and 2005, and remained the
same for the middle expenditure quintiles (Annex 2.6).
Diverting household resources to tobacco
spending has important negative health effects within
the home. The national nutritional surveillance system
among more than 175,000 urban slum households
reported that paternal smoking predicts an increased
probability of short-term and chronic child
malnutrition.38 These findings are all the more striking
considering that smoking is primarily an addiction
among males, and one that started during childhood or
adolescence when the implications of starting to smoke
were probably poorly understood.
Market Failures: Inadequate Information
About Health Risks and Addiction, and
Financial and Physical Costs Imposed
on Nonsmokers and Society
The economic principle of consumer sovereignty
suggests that consumers make the best decisions about
how to spend their own money. This argument is based
on two assumptions. The first is that consumers make
informed decisions with full knowledge of the costs
and benefits of their choices. The second assumption is
that individuals bear all of the risks of their
consumption decisions; that is, their actions have no
cost or impact on others. Tobacco use violates both of
these assumptions.
Javanese boys 13 to 17 years old could
repeat the health warnings on cigarette
packs, but also claimed that smoking one to
two packs per day was not harmful to health.
What is perhaps even more confusing
to Indonesian consumers is that
the government health regulations
have not kept up-to-date with
the growing body of knowledge.
Informed choices require accurate information.
However, the health hazards associated with tobacco
consumption are poorly understood. Javanese boys 13
to 17 years old could repeat the health warnings on
cigarette packs but also claimed that smoking one to
two packs per day was not harmful to health.39
Contrary to industry-sponsored reports,40 independent
research has demonstrated that kreteks are as harmful
as other cigarettes.41 Even fewer people understand the
serious health effects to nonsmokers from exposure to
secondhand smoke.42
What is perhaps even more confusing to
Indonesian consumers is that the government health
regulations have not kept up-to-date with the growing
body of knowledge. Articles in the existing government
regulation for tobacco control require printing tar and
nicotine levels on cigarette packages,43 despite the
evidence that such measurements are based on
discredited testing methodology and have been used to
market cigarettes as “healthier.”44 It is likely that this
has contributed to an increase in the sales of cigarettes
marketed as “mild.” The market share for “mild”
kreteks — virtually nonexistent in 1994 — represented
34 percent of the machine-made kretek market and 19
percent of the total cigarette market in 2006.45 The
industry projects that retail sales for “low-tar”
cigarettes will triple between now and 2010.46 In fact,
smokers of “low-tar” cigarettes face no fewer health
risks compared with smokers of “high-tar” cigarettes.47
As such, global health bodies recommend banning
such terms as “light,” “mild,” and “low-tar” because
they mislead consumers into thinking that they are
using less dangerous products.48
Sarah Barber, Sri Moertiningsih Adioetomo, Abdillah Ahsan, Diahhadi Setyonaluri | 11
The average age of smoking initiation has
declined to 17.4 years. Children are
socialized early on to consider smoking as
normal and socially acceptable.
The government regulation is weak in the area of
consumer information. Whereas the regulation does
call for health warnings on cigarette packages, only one
health warning is authorized for use, and there is no
minimum size. The authorized health warning reads:
“Smoking can cause cancer, heart attacks, impotence
and harm pregnancy and fetal development.” The
minimum size for health warnings on billboards and
advertisements is 15 percent.49 Effective messages are
needed to communicate health risks that will appear in
20 to 25 years between the time a person starts to
smoke and the onset of many diseases. Striking
differences in prevalence can be correlated to
educational levels, whereby 73 percent of males with
no education smoke compared with 48 percent of
males with college education, which suggests a need to
clearly communicate health risks (Annex 2.3).
The decision to start smoking is usually made
during childhood or adolescence, and children are
starting to smoke at earlier ages than in the past. The
average age of smoking initiation has declined to 17.4
years in 2004, and 78 percent of Indonesian smokers
start before the age of 19 years (Annexes 2.7, 2.8).
Between 1995 and 2004, smoking prevalence for male
children 15 to 19 years of age increased by 139 percent,
and for 20- to 24-year-old males, prevalence increased
by nearly 50 percent (Table 2.2, Annex 2.1). Declines in
prevalence among older age groups reflect higher rates
of cessation and would probably include people who
quit because they became sick or recognized the signs
of serious tobacco-related illnesses (Annexes 2.1, 2.9).
The Global Youth Tobacco Survey (GYTS) was
conducted among schoolchildren 13 to 15 years old in
six locations in Indonesia (Table 2.3). The survey
reports that approximately 24 to 41 percent of boys in
this age group are current smokers. It is remarkable,
Table 2.2: Male Smoking Prevalence by Age Group, 1995 and
2004, and the Percentage Change over Time
Age group
Smoking prevalence
Percentage change
1995
2004
15-19
13.7
32.8
139.4 %
20-24
42.6
63.6
49.3 %
25-29
57.3
69.9
22.0 %
30-34
64.4
68.9
7.0 %
35-39
67.3
67.7
0.6 %
40-44
67.3
66.9
-0.6 %
45-49
68.0
67.9
-0.2 %
50-54
66.8
67.9
1.7 %
55-59
66.1
64.1
-3.0 %
60-64
64.7
60.0
-7.3 %
65-69
64.3
58.7
-8.7 %
70-74
56.9
55.3
-2.8 %
75+
53.3
47.4
-11.1 %
Average
53.4
63.1
18.2 %
Source: SUSENAS.
12
however, that 83 to 93 percent of the current smokers
have already tried to quit — but were unsuccessful.
This percentage suggests that young people lack the
capacity to evaluate the risks of smoking and the highly
addictive nature of nicotine. It is unlikely that youth
who start smoking make an informed choice to start a
lifelong addiction.
Because nicotine is a highly addictive substance, it
is hard for smokers to quit. Unlike those who use other
highly addictive but illegal substances, though,
smokers have many opportunities to purchase tobacco
and are confronted with advertisements that promote
tobacco use as socially acceptable.50 Nearly all
(89 to 95 percent) of the young people surveyed
saw a cigarette billboard advertisement in the past
month (Table 2.3). This indicates that children are
socialized early on to consider smoking as normal and
socially acceptable.
The second assumption behind consumer
sovereignty is that the consumer alone bears the risks
and costs of consumption decisions. Smokers, however,
impose physical and financial costs on others and on
society as a whole. A Jakarta-based hospital study
estimated that annual healthcare costs for inpatient
treatment of tobacco-attributable illnesses were Rp 2.9
trillion (US$ 319 million).51 This figure does not
consider the health costs for nonsmokers exposed to
secondhand smoke. Given Indonesia’s sizeable
population, limited public awareness of the negative
health effects of active or passive smoking, and the lack
of clean air legislation, substantial health costs for
nonsmokers exposed to secondhand smoke are to be
expected. In other countries, between 6 and 15 percent
of total health care costs are attributable to treatment
and care of tobacco-related illnesses.52 Using as a basis
for comparison the amount of money spent from public
and private sources on health care in Indonesia in 2005
(Rp 73.5 trillion, or US$ 8.1 billion)53 and assuming that
6 to 15 percent is spent on tobacco-related illnesses, the
total costs of tobacco-related morbidity and mortality
would approximate Rp 4.4 to 11.0 trillion (US$ 484
million to 1.2 billion) per year, or between 0.12 and 0.29
percent of the GDP.54 The government’s share of total
health spending through financing and delivering
public health services amounts to 35 percent, and the
remaining balance would largely come from individual
out-of-pocket payments.
Table 2.3: Summary of Global Youth Tobacco Surveys in Indonesia Among 13 to 15
Year Olds, 2004 to 2006
Responses
Bekasi
Medan
C. Java
Sumatra
Surakarta
Jakarta
34.8
40.5
25.0
24.0
29.3
32.1
9.4
8.1
4.3
5.0
3.4
7.4
88.7
88.4
83.3
93.3
90.7
91.8
were exposed to secondhand smoke outside home
76.1
79.5
81.1
81.0
79.7
81.6
saw a cigarette billboard
in the last 30 days
88.8
91.8
92.7
93.4
94.7
93.2
Currently use tobacco (%)
Male
Female
Among children that
currently smoke, % that
tried to stop in the past year
Among all children, % that:
Source: Centers for Disease Control and Prevention, Global Youth Tobacco Surveys Country Fact Sheets.
This figure probably underestimates health costs
because health service utilization in Indonesia is
relatively low, and people do not always obtain formal
health care when they are sick. Other social costs
related to tobacco consumption include diminished
work productivity, economic losses resulting from
premature death, and reductions in future human
capital investments (such as decreased spending on
health and education) among children living in
households with smokers. In more developed settings,
private employers have encouraged their employees to
stop smoking to improve productivity and for economic
gains such as lower health care costs, fewer sick days,
and reduced maintenance costs and risk of fires.55 In the
U.S., total costs for tobacco-attributable mortality
(including medical care expenditures and economic
losses such as decreased employee productivity) are
equivalent to Rp 701 trillion annually (US$ 77.1 billion).56
Although present-day smoking prevalence rates
among males in Indonesia are similar to those of
American males in the 1950s and 1960s, this
comparison provides some idea about future costs.
Generating Government Revenue: Tobacco
Price and Tax Measures
An important reason that governments intervene
in the tobacco market is to generate tax revenue.
Tobacco taxation forms a stable source of government
revenue, contributing 5.7 percent of Indonesia’s total
government revenue in 2007. Given that tobacco
prices and taxes are low, substantial potential exists
for greater revenue generation.
Because the demand for tobacco products
responds to changes in price, increasing the price and
tax of tobacco products is also the most effective way to
reduce tobacco-related morbidity and mortality.
Numerous economic studies of tobacco price increases
have consistently found that price elasticity of demand
generally falls between -0.25 and -0.50 in developed
countries, or that a 10 percent increase in price results
Globally, evidence has shown that younger
people and people with low incomes are
more responsive to tobacco price
increases.
in a 2.5 to 5.0 percent reduction in consumption.57
Studies in low- and middle-income countries have
found similar or greater reductions in consumption.58
These studies cite price elasticities ranging from -0.50
to -0.70 in Southeast Asia,59 -0.09 in Thailand and
-0.23 in Sri Lanka,59 and -0.54 in China.60 Consistent
with these studies, research in Indonesia demonstrates
price elasticities of -0.29 to -0.67, or that a 10 percent
increase in cigarette price results in a decline in
cigarette consumption of 2.9 to 6.7 percent. Moreover,
because tobacco is an addictive product, the long-run
impact is greater than the short-run impact.
Globally, evidence has shown that younger people
and people with low incomes are especially responsive
to tobacco price increases. In Indonesia as in most
other countries, people start smoking during
childhood and adolescence. Recent estimates suggest
that price elasticity of demand among youth could be
three times greater than elasticity for adults61 —
meaning that youth are much more likely to quit,
reduce consumption, or not start using tobacco in
response to price changes. Therefore, keeping real
tobacco prices high through taxation represents the
most effective tool in preventing uptake and
encouraging cessation among youth. This is
particularly important in light of evidence that youthaccess policies alone (such as age restrictions for
buying cigarettes) have proven to be ineffective.62
Similarly, research in industrialized countries has
demonstrated higher price elasticities among lowincome smokers when compared with high-income
smokers.63 These studies conclude that increases in
real cigarette prices through tobacco taxes could
narrow socioeconomic inequalities in health.
14
In many high-income countries, tobacco is an
inferior good. However, in Indonesia, income elasticity
is positive, and cigarettes are normal goods.
Reductions in consumption resulting from higher
cigarette prices are offset by increases in consumption
because of rising household incomes. Studies
examined here predict income elasticities between
0.32 and 0.76, or that a 10 percent increase in income
results in an increase in tobacco consumption between
3.1 and 7.6 percent. A tax increase aimed to reduce
tobacco consumption, therefore, needs to be large
enough to offset the increases in consumption
expected with rising household incomes.
Where taxes are effectively passed on to
consumers in the form of increased prices, significant
public health benefits can occur — such as cessation,
reductions in smoking uptake, and declines in tobacco
consumption. In the Asia-Pacific region alone, a
33 percent price increase could avert between 10 and
28 million deaths, and a 50 percent increase could
avert 15 to 38 million deaths.50 In Indonesia, with some
57 million smokers, even a moderate tax increase to 50
percent of the sales price could avert approximately
0.6 to 1.4 million tobacco-related deaths. Therefore,
tobacco price increases are the most effective policy
measure available to spur declines in smoking
prevalence and uptake and reduce overall tobacco
consumption, thereby promoting population health
and welfare.
At the same time, demand for tobacco products is
inelastic; that is, the percentage reduction in demand
is less than the percentage increase in price. In other
words, many smokers would continue their addiction
even at higher prices. With a relatively small impact on
the tax base, an increase in tobacco taxes will result in
a net increase in total government revenue from the
tax, regardless of reduced sales volume for cigarettes.
Simulations of a 5 percent annual increase in real
tobacco prices report that tax revenue gains would be
substantial, amounting over ten years to a cumulative
total of Rp 83.1 trillion (US$ 9 billion).59
Keeping tobacco prices high through regular
increases in tax, therefore, has proven effective in
generating both positive health outcomes and
increased government revenue. However, the impact
of price and tax measures on health and revenues
depends on a number of factors, including the
structure of the market, industry responses to tax
increases, household responses to prices, the extent to
which consumers substitute cheaper tobacco products,
the structure and implementation of the tax, and other
related government policies.
7
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Stanley K. Control of tobacco production and use. In: Jamison DT, Mosley WH, Measham AR, Bobadilla JL, eds. Disease control
priorities in developing countries. Oxford University Press 1993:703-23. 1 Max W. The financial impact of smoking on health-related costs:
A review of the literature. American Journal of Health Promotion 2001;15:321-31, 2001. See, also, US Centers for Disease Control &
Prevention (CDC). Annual smoking-attributable mortality, years of potential life lost, and economic costs, United States, 1995-1999.
Morbidity and Mortality Weekly Review (MMWR) 2002;51(14): 300-03; Miller LS, Zhang X, Max W. State estimates of total medical
expenditures attributable to smoking. 1993 Public Health Reports, September/October 1998. Warner KE, Hodgson TA, Carroll CE
Medical costs of smoking in the United States: Estimates, their validity, and their implications. Tobacco Control 1999; 8(3): 290-300.
World Health Organization. National Health Accounts. Indonesia, 2006.
Based on 2007 budget, in Ministry of Finance, Budget Statistics 2007-2008.
Max W, Rice DP, Sung H-Y, Zhang X, Miller L. The economic burden of smoking in California. Tobacco Control 2004;13: 264-267. Bunn
WB 3rd, Stave GM, Downs KE, Alvir JM, Dirani R. Effect of smoking status on productivity loss. Journal of Occupational and
Environmental Medicine 2006;48(10):1099-108; Halpern MT, Shikiar R, Rentz AM, Khan ZM. Impact of smoking status on workplace
absenteeism and productivity. Tobacco Control 2001;10(3):233-238.
Annual smoking — Attributable mortality, years of potential life lost, and economic costs — United States, 1995-1999, MMWR April 12,
2002 / 51(14);300-3
Chaloupka FJ, Warner KE. The economics of smoking. In: Culyer AJ, Newhouse JP (eds). Handbook of Health Economics, edition 1,
volume 1, chapter 29, pages 1539-1627. Elsevier, 2000.
Chaloupka FJ, Hu TW, Warner KE, Jacobs R, Yurekli A. The taxation of tobacco products. In: Jha P, Chaloupka FJ (eds). Tobacco
control in developing countries. New York: Oxford University Press, 2000.
Guindon GE, Perucic A-M, Boisclair D. Higher tobacco prices and taxes in South-east Asia: An effective tool to reduce tobacco use,
save lives and generate revenue. World Bank, Health, Nutrition and Population Discussion Paper. Economics of Tobacco Control
Paper No. 11, October 2003.
Hu TW, Mao, Z. Effects of cigarette tax on cigarette consumption and the Chinese economy. Tobacco Control 2002;11:105-108.
In: Jha P, Chaloupka FJ, Moore J, Gajalakshmi V, Gupta PC, Peck R, et al. Tobacco addiction. Disease control priorities in developing
countries (2nd Edition). pp 869-886. New York: Oxford University Press, 2006. DOI: 10.1596/978-0-821-36179-5/Chpt-46.
Ling PM, Landman A, Glantz SA. It is time to abandon youth access tobacco programmes. Tobacco Control 2002;11: 3-6.
In: Jha P, Chaloupka FJ, Moore J, Gajalakshmi V, Gupta PC, Peck R, et al. Tobacco addiction. Disease control priorities in developing
countries (2nd Edition) ed. 869-886. New York: Oxford University Press 2006, and Townsend JL, Roderick P, Cooper J. 1998. Cigarette
smoking by socio-economic group, sex, and age: Effects of price, income, and health publicity. BMJ 309;6959:923-926.
III. Tobacco Tax, Tariff,
and Price Information
In this chapter, we present data about cigarette
prices, tax rates, and affordability of tobacco. The
current tobacco tax system is complex and applies both
an ad valorem and specific per-stick tax, which differs
for each tobacco product and by industry production
scales. Hand-rolled products and firms with smallscale production levels have consistently enjoyed the
most favorable tax rates, which has contributed to
variations in point-of-sale prices. Smokers from highincome households purchase cigarettes that are more
expensive than those purchased by low-income
households. Cigarette prices in Indonesia have
remained stable between 1970 and 2005, and tobacco
has become more affordable since 1980, relative to the
GDP. Cigarette taxes and prices in Indonesia are low in
absolute values and compared with other low-income
countries and regional averages.
Tobacco Tax Structure
Excise taxes have been levied on tobacco products
in Indonesia since the early 1900s. In 1932, the tax rates
were the same for all types of tobacco products (20
percent). Since 1936, a tiered tax system for cigarettes
began according to the following types of products:
hand-made kreteks (tobacco-and-clove cigarettes),
klobot (kreteks wrapped in cornhusks), klembak
kemenyan (kreteks with incense), and white cigarettes
(tobacco only). Differential tax rates for hand-rolled
and machine-produced kreteks were introduced with
the mechanization of the industry. In the 1970s, the tax
system was modified based on production volume and
product type, with the highest tax rates corresponding
to firms with the highest production.64 The tobacco tax
structure continues to be based on the type of product,
mode of production (hand-rolled or machine-made),
and firm production levels.
The HJE is the “retail sales price,” and represents
the factory price inclusive of taxes, profit, and
transaction costs. Based on the official form, each
manufacturer reports the brand-specific costs of all
ingredients and related production costs (tobacco,
cloves, paper, transportation, wrapping and packaging,
etc.) to arrive at a base price (Annex 3.1). The ad
valorem, VAT, and specific taxes are applied to the base
price. The VAT is a flat rate of 8.4 percent. The
manufacturer then adds profits (for the distributor,
agent, and retailer) and the factory transaction costs to
arrive at the brand-specific HJE. Based on informal
discussions, profits and transaction costs are included
before the tax is estimated. The HJE reported in the
table is the “minimum” because it is the lower bound of
the brand-specific range.
A comparison of the changes in the tobacco tax
scales between 2007 and 2008 by type of product and
production scale illustrates the complexity of the
system (Table 3.1).
In 2007, ad valorem rates for machine-made
kreteks and white cigarettes were between 26 percent
and 40 percent, depending on production scales. In
addition, a specific per-stick tax was applied for the
first time, which also varies by type of product, mode of
production (hand-rolled or machine-made), and firm
production scales. In 2008, the ad valorem rates were
revised downward, and a much larger specific tax was
applied. The specific tax is Rp 35 for all types of
cigarettes with the exception of hand-rolled kreteks
produced at the smallest scale (Rp 30). Since 2000, ad
valorem tax rates for machine-made kreteks and white
cigarettes were the same; however, the 2008
regulation re-introduced differential ad valorem rates
for these products, but with lower ad valorem rates for
white cigarettes in comparison with machine-made
kreteks (SKM) from the same production scales. The
minimum (lower boundary) HJE was revised upward
by 9 percent for firms within the largest production
Production
275
20
20
4
8
16
20
4
8
NA
NA
NA
NA
NA
NA
NA
NA
275
275
40
50
50
180
20
20
Combined IIIA and IIIB
8
16
20
Combined I and II
8
22
35
36
NA
NA
NA
NA
NA
NA
35
35
35
30
35
35
35
35
35
35
35
35
Specific per
stick tax (Rp)
0
10
18
15
30
34
22
35
36
ad valorem
tax (%)
2008
Note: Ministry of Finance Regulations No. 118.PMK.04/2006, effective from March 2007, specific tax effective since July 2007, and No. 134/PMK.04/2007, effective in 1 January 2008. Production scales set
forth in 43/PMK.04/2005, effective from July 2005, and No. 134/PMK.04/2007, effective 1 January 2008. HJE minimum: lower bound of brand specific retail price. NA: not applicable. KLB: Klobot (corn
husk wrapped cigarettes); KLM: Klembak (incense clove cigarettes); SPT: hand-rolled white (tobacco only) cigarettes.
NA
40
≤50 million grams
IIIB
Other (HPTL)
50
>50 million to ≤500 million grams
IIIA
275
50
>500 million to ≤2 billion grams
II
NA
50
>2 billion grams
180
≤6 million
II
I
215
6 million
I
374
≤500 million
III
600
383
3
234
>500 million to ≤2 billion
4
3
336
520
217
225
375
374
383
600
II
275
≤6 million
IIIB
8
5
NA (Only one category of SKT)
380
>6 million to ≤ 500 million
IIIA
16
7
3
5
7
3
5
7
HJE minimum
(Rp per stick)
>2 billion
395
II
22
26
36
40
26
36
40
Specific per
stick tax (Rp)
I
475
>2 billion
255
≤500 million
III
I
265
II
440
345
≤500 million
III
>2 billion
450
II
I
550
HJE minimum ad valorem
(Rp per stick) tax (%)
>2 billion
(no. of sticks per year)
I
Production
Tier
Cigars (CRT)
Sliced leave (TIS)
Other cigarettes
(KLB, KLM, SPT)
Filtered handrolled kreteks
(SKTF)
Hand-rolled
kreteks (SKT)
Machine-made
white (tobacco
only) cigarettes
(SPM)
Machine-made
kreteks (SKM)
Tobacco
product
2007
Table 3.1: Tobacco Tax Scales for Domestically Produced and Consumed Products, 2007 and 2008
18
scales and downward by 15 percent for those in the
smallest production scales.
For hand-rolled kreteks, there are a number of
differences between the 2007 and 2008 regulations. A
new category was established for filtered, hand-rolled
kreteks (SKTF). The number of production scales was
reduced from four to three, and the same tax rates
were applied to firms producing ≤500 million sticks
per year. For (filterless) hand-rolled kreteks (SKT), the
ad valorem rates were revised downward substantially.
For the smallest SKT producers, the HJE was revised
downward by 38 percent, and the ad valorem rates
eliminated entirely. However, filtered hand-rolled
kreteks (SKTF) face the same ad valorem rates as
machine-made kreteks. Perhaps the most important
change is the specific tax of Rp 35 for all production
categories with a slightly lower tax (Rp 30) for handrolled kretek (SKT) firms producing ≤500 million
sticks per year.
As before, other tobacco products produced on a
small scale are taxed at low rates. These include
cornhusk cigarettes, rhubarb cigarettes, kreteks with
incense; white (tobacco only) hand-rolled cigarettes,
cigars, and sliced tobacco leaves. In addition, there
were some changes in the production scales for other
cigarettes and tobacco leaf.
To achieve their revenue targets for excise, the
Ministry of Finance can adjust the ad valorem tax
rates, specific per-stick tax, the cut-off points for firm
production scales, and the number of firm production
scales. The HJE is based on firm production costs but
can also be modified by the Ministry of Finance, as
indicated in Table 3.1. Any of these factors can be
adjusted once or more, or not at all during a single year
for a given tobacco product or production scale.
However, hand-rolled products and firms with smallscale production levels have consistently enjoyed the
most favorable tax rates (Table 3.2, Annex 3.2).
Between 1996 and 2001, there was at least one
adjustment annually in the tobacco tax scales, and
more than one adjustment was made in 2000 and
2001. Between 2000 and 2007, there were no changes
in the ad valorem rates for SKM and SPM and,
between 2002 and 2007, there were no changes in SKT
or other cigarette products. There were, however,
adjustments in the HJE. In 2001, one HJE was applied
to SKM and SPM products from all production scales,
and this system switched back to a tiered HJE by
production scale after one year.
To encourage exports, net exporters pay reduced
ad valorem rates for their domestically sold products.
For all types of cigarettes, cigars, or sliced leaf, firms
that export more than their domestic sales enjoy
reduced ad valorem rates of 4 percentage points of the
tax rate for the same type of tobacco product sold
domestically (Annex 3.3). Imported tobacco products
are taxed at rates comparable to domestically produced
products at the highest firm production scales, plus an
import duty of 15 percent. In practice, only white
machine-made cigarettes are imported. For imported
products, the HJE is composed of the port value (CIF)
and import duty on which the ad valorem and VAT is
levied, and the profit and transaction costs are added
(Annex 3.4). No taxes are paid for exported tobacco
products or sliced tobacco grown for personal
consumption.
Cigarette Taxes and Prices
Using household data about prices paid for
cigarettes and excise tax data about revenues, we can
calculate the tax rates for the three main types of
cigarettes (Table 3.3). The tax rate averages 37 percent
of sales price, with the lowest rate (21 percent) for
hand-rolled kreteks and the highest (46 percent) for
machine-made kreteks (Table 3.3).
To estimate the tax share as a percent of
government retail price (HJE), it is necessary to use
20
Table 3.2: Change in Tobacco Tax Scales for Domestically Produced and Consumed
Products, 1996 to 2007
Machine-made
kreteks (SKM)
Date
Hand-made
kreteks (SKT)
HJE
(Rp)
Machine-made
white cigarettes
(SPM)
Tax
(%)
HJE
(Rp)
Tax
(%)
Tax
(%)
5/ 1996
20-36
30-80
2-16
20-60
20-38
4/ 1997
20-36
40-85
2-16
25-65
4/ 1998
20-36
140-225
2-16
4/ 1999
20-36
110-225
4/ 2000
28-40
11/ 2000
HJE
(Rp)
Other cigarettes
Change in
production
scales
Tax
(%)
HJE
(Rp)
25-75
1-8
20-60
X
20-38
30-80
1-8
25-65
X
80-150
20-38
30-125
1-8
50-125
4-16
55-150
20-36
110-225
4-16
55-150
120-250
12-20
65-165
28-40
70-150
12-20
65-165
26-40
150-280
10-20
100-200
26-40
120-180
10-20
100-200
4/ 2001
26-40
170-305
4-20
125-230
26-40
90-195
10-20
100-200
7/ 2001
26-40
190-325
4-20
150-255
26-40
103-208
4-20
100-200
12/ 2001
26-40
270
4-20
175-225
26-40
150
4-8
100-125
X
11/ 2002
26-40
320-400
4-22
200-340
26-40
200-270
4-8
125-150
X
1/2003
26-40
320-400
4-22
200-340
26-40
180-250
4-8
125-150
7/ 2005
26-40
370-460
4-22
230-400
26-40
210-295
4-8
150-180
4/ 2006
26-40
410-510
4-22
255-440
26-40
235-320
4-8
165-200
3/ 2007
26-40
440-550
4-22
275-475
26-40
255-345
4-8
180-215
X
Source: Excise Tax Directorate, Ministry of Finance. HJE is the lower bound of the brand specific ”retail sales price” or factory prices plus taxes and profits.
Specific per stick taxes were implemented since 2007, and are listed in Table 3.1.
data from the Excise Tax Directorate or collect market
data because the HJE is brand- and firm-specific. An
opportunistic market survey was conducted among
street vendors, supermarkets, and small grocers in
Depok and Jakarta, and includes the most popular
brands of cigarettes sold.65 The survey collected data
about banderol prices and sales prices. The banderol
price listed on the tax ribbon is the HJE multiplied by
the number of sticks. Where sales prices exceed
banderol prices, firms are obligated to report to the tax
directorate to allow for an adjustment of the HJE. It is
intended, therefore, that the price at point of sale is
lower than the banderol price. This survey indicates
that sales prices are well below banderol prices for
nearly all brands surveyed. Banderol prices were
approximately 22 percent higher than sales prices for
SKM, 19 percent higher for SKT, and 17 percent higher
for SPM. Using this estimate, the tax share as a
percentage of the HJE is approximately 31 percent
(Table 3.3). The largest difference between the two
rates is for SKM. Hand-rolled kreteks have the lowest
rates of taxation as well as the lowest banderol
prices, and the difference between the two rates is
relatively small.
Table 3.3. Cigarette Tax Rates as % of Sales Price and as % of
Retail Price (HJE), by the Three Main Types of Cigarettes, 2005
Cigarette Tax Rate
Type of cigarette
% of sales price
% of retail price (HJE)
Machine-made kreteks (SKM)
46.0
37.7
White cigarettes (SPM)
39.9
34.2
Hand-made kreteks (SKT)
21.4
18.0
Average
36.8
30.7
Sources: Price per pack from SUSENAS 2005 national household data, industry figures for total production by type
of cigarette, and excise tax directorate figures for revenue by type of cigarette. HJE is the “retail price” which
represents the factory price inclusive of tax and profits. HJE across brands estimated from an opportunistic survey
that reported averages of the official price premium over the sales price.
In 2007, amendments to the Excise law No. 11
revised upward the caps on the tobacco excise tax from
55 to 57 percent of the retail price (HJE), or from 250
percent to 275 percent of the manufacturers’
production cost.66 Holding other components constant,
applying the maximum excise allowable by law (57
percent of HJE) would approximate a tax rate of 64
percent of sales price.
cloves, labor, packaging, and flavoring. Graph 3.1
illustrates the projected 2005 common size statements
for hand-rolled kreteks (SKT) and machine-made
kreteks (SKM) produced by Gudang Garam, the
cigarette firm with the largest market share. Kreteks
are a mix of about two-thirds tobacco and one-third
cloves. Up to 30 percent of the tobacco component
relies on leaf imports and is, therefore, sensitive to
price fluctuations based on the strength of the rupiah.
This is similar to the packaging and flavoring, which
In addition to the tax, the main components of the
price of cigarettes include the profit margin, tobacco,
Graph 3.1: Common Size Statements, Hand-rolled Kreteks (SKT) and
Machine-rolled Kreteks (SKM), Gudang Garam, Projected 2005
Excise duty
SKM
Tobacco
Clove
Packaging
Flavor
Labor
SKT
Overhead
Margin
0%
10%
20%
Source: Jardine Fleming Research
30%
40%
50%
60%
70%
80%
90% 100%
22
Overall, real cigarette prices have
remained remarkably stable between
1970 and 2005.
also rely on imported products. Flavorings are
produced by multinational companies. Packaging costs
are higher for SKM (4 percent) compared with SKT (1.3
percent), perhaps related to the cost of filters. The
higher proportion of cloves in the SKT cost breakdown
(6.2 percent compared with 3.1 percent for SKM) could
reflect small or no inventory for stockpiling cloves.
Clove traders also play a role in stockpiling, which could
result in higher prices for small producers. Labor forms
nearly 6 percent of SKT costs for Gudang Garam,
compared with 0.2 percent for SKM. The projected
profit margin was 52 percent for SKT and 41 percent for
SKM. In the past, firms have been willing to absorb
excise tax increases and reduce their margins to
maintain or increase market share.67
1998, real cigarette prices remained largely unchanged
between 1970 and 2002, after which there was a slight
increase that could be related to increases in the excise
tax rates. Overall, real cigarette prices have remained
remarkably stable between 1970 and 2005.
There was a decline in per capita domestic
consumption as measured by domestic sales between
2001 and 2003 (Graph 3.3). However, 2001 production
levels were achieved again in 2005, corresponding
with the decline in real prices and no tax increases
(Chapter VI). Given that demand is inelastic and
consumption changes slowly, the decline in per capita
consumption as measured by tax paid sales probably
captures the industry’s ability to change production
levels in response to the changes in taxes rather than
changes in demand for cigarettes. Household level data
report 7.3 million new smokers between 2001 and
2004, and aggregate tobacco consumption increased
by 16 percent.68
The change in nominal and real prices of cigarettes
(kreteks and white) between 1970 and 2005 is
illustrated in Graph 3.2. While nominal prices
increased rapidly after the economic crisis from 1997 to
Tobacco in Indonesia became
50 percent more affordable between
1980 and 1998.
Tobacco price (Rupiah)
Graph 3.2: Comparison of Nominal and Real Tobacco Prices,
1970 to 2005
6000
Nominal tobacco price
5000
Real tobacco price
4000
3000
2000
1000
0
1970
1975
1980
1990
1985
1995
2000
Year
Source: Price data to 2001 from Djutaharta et al 2005; recent figures processed from SUSENAS.
2005
3500
Per capita adult consumption
3000
Real tobacco price
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2500
2000
1500
1000
500
0
No. of sticks/year
Tobacco price (Rupiah)
Graph 3.3: Comparison of Real Tobacco Prices and Per Capita Annual
Domestic Sales, 1970 to 2005
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Year
Sources: Tobacco price data to 2001 from Djutaharta et al 2005; recent figures processed from SUSENAS; domestic sales from
FAO and industry reports, subtracts exports, and adds imports; adult population 15+ from BAPPENAS, BPS, UNFPA 2005.
Zealand, where real tobacco prices more than tripled
between 1980 and 2000, making tobacco much less
affordable (Graph 3.4). In contrast, an index of less
than 100 means that tobacco became more affordable.
Tobacco in Indonesia became 50 percent more
affordable between 1980 and 1998, similar to Sri
Lanka and India.
Affordability of Tobacco Products
Guindon et al estimated cigarette affordability for
countries in Southeast Asia.69 Affordability is
calculated by dividing relative tobacco prices by a
country’s per capita gross domestic product (GDP). An
index of greater than 100 means that tobacco became
less affordable over time. This occurred in New
Graph 3.4: Affordability of Tobacco Products, 1980 to 2000
250
New Zealand
200
>100 = less
affordable
150
Bangladesh
India
100
<100 = more
affordable
50
Indonesia
Sri Lanka
0
1980
1982
1984
1986
1988
1990
Year
Source: Guindon, et al. 2003.
1992
1994
1996
1998
2000
24
Cigarette taxes and prices in Indonesia are
low relative to other low-income countries
and regional averages.
We extended this analysis using data from 2001 to
2005. The affordability index was almost flat during this
period with the same index values in 2001 and 2005.70
The annual GDP growth rate was estimated at 6 percent
between 2003 and 2004.71 This suggests that changes in
the tobacco taxes did not reduce cigarette affordability.
Other factors that affect affordability are the
availability of tobacco products at different prices and
“quality,” which makes smoking affordable for all
income groups. The price of cigarettes consumed
varies by income levels. The higher the smoker’s
household income, the higher the price per pack of
cigarettes purchased. On average in 2005, highincome smokers purchased cigarettes that were about
40 percent more expensive than those purchased by
low-income households (Table 3.4). Lower income
households tend to consume more hand-rolled kreteks
relative to machine-made cigarettes, because of their
lower sales prices on average. In addition, high-income
smokers consume more sticks of cigarettes.
Cigarette taxes and prices in Indonesia are low
relative to other low-income countries and regional
averages. Graph 3.5 illustrates the simple average tax
rate for a number of different countries. Tax rates
average 51 percent for low-income countries and
58 percent for countries in the East Asia and Pacific
region. The average price per pack averages US$ 1.18
in low-income countries, and US$ 2.28 for countries in
the Asia-Pacific. The Asia-Pacific region encompasses
high-and middle-income nations such as Singapore
and Malaysia, in addition to very poor countries such
as Cambodia. In some middle- and high-income
countries (e.g. Turkey) and other countries where
tobacco taxes have been used as a part of
comprehensive strategies to reduce tobacco use (e.g.
Thailand), taxes account for two-thirds or more of the
retail price.
Note About ad valorem and Specific
Tax Systems72
The tobacco tax system in Indonesia applies both
an ad valorem (based on value) and a specific tax
Table 3.4: Cigarette Expenditures per Pack for the Three Main Types
of Products, by Household Expenditure Quintile, 2005, Rupiah
Type of
cigarette
1
(lowest)
2
Machine-made kreteks
4,865
5,622
Hand-rolled kreteks
4,079
Machine-made whites
Average (Rupiah)
3
4
5
(highest)
6,168
6,738
7,279
4,834
5,258
5,731
7,308
3,702
4,334
4,270
5,271
6,524
4,404
5,186
5,704
6,353
7,232
0.44
0.52
0.57
0.64
0.72
(Pack of 16 sticks.)
Average (US$)
Source: SUSENAS.
Graph 3.5: Cigarette Price per Pack, and Tax as Percent of the Price,
2004 to 2005
Pakistan
69% tax rate
39%
China
Philippines
55%
63%
Bangladesh
Tax share
37%
Indonesia
Vietnam
38%
Thailand
75%
57%
Mexico
Poland
68%
Low income average
51%
India
55%
Turkey
71%
East Asia & Pacific average
58%
68%
High income average
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Price per pack (US$)
Source: Ayda Yurekli, Presentation to meetings on tobacco economics, Bloomberg Foundation, New York, November 2007.
(based on quantity). Either system has advantages and
disadvantages in terms of generating higher revenues,
administration, and promoting higher prices.
The specific tax system has an advantage in terms
of generating higher revenues, given that it protects
revenues from price wars or reductions. Specific excises
can facilitate revenue forecasts where buying patterns
are based on “high” or “low” quality products. The
specific tax system also provides an incentive to
increase cigarette prices, because any increase in price
is returned to the manufacturer as revenues. Because of
the price effect, specific excises that impose the same
tax per cigarette are more effective in discouraging
cigarette consumption. In contrast, the ad valorem
taxation has a multiplier effect; a part of any increase in
the price at point of sale is returned to the government
as tax revenue. With an ad valorem tax, the
government effectively subsidizes any price reduction.
The ad valorem system provides no guarantee of higher
revenues because of inflation and price wars, unless a
minimum price at point of sale is specified. The
multiplier effect of the ad valorem tax creates a
disincentive to the manufacturer to improve the
product’s quality. Specific taxes, on the other hand, may
lead to greater consumption of high-quality brands.
Indonesia has favored ad valorem excises for
hand-rolled and domestically produced kreteks
relative to white cigarettes or prestige brands that are
imported or produced locally by foreign companies. Ad
valorem excise in this situation will give greater
protection to domestic producers of less expensive
(“lower quality”) brands. However, when there are
large quality differences between domestic and
imported products, import duties can be imposed on
the imports to offset the effect that a specific excise
negatively affects lower-price or quality domestic
production. When customs duties are imposed for
protection, specific excises can be imposed on both
domestic production and imports.
Lastly, specific excises have the advantage in
terms of ease of administration. This is because
specific taxes are based on quantity and not the value
of the product. Under ad valorem taxation,
determining the value is particularly difficult, and
firms can game the system to reduce their tax
liabilities. International experience has demonstrated
26
Tax increases that aim to reduce
consumption need to be higher than the
general rate of inflation and large enough
to offset increases in income.
that ad valorem taxes keep pace with inflation better
than specific taxes. Ad valorem taxes, however, are no
guarantee that tax rates will keep pace with inflation,
and may require adjustment. Specific taxes can keep
pace with inflation if they are automatically adjusted to
the consumer price index (CPI) or other price
indicators. However, it is very important that the
inflation adjustment be automatic. Such an adjustment
should be made by administrative order, and should
not require a decision by an executive agency or
approval by a legislative body. Tax increases that aim
to reduce consumption need to be higher than the
general rate of inflation and large enough to offset
increases in income.
64
65
66
67
68
69
70
71
72
Tarmidi L. Changing structure and competition in the kretek cigarette industry. Bulletin of Indonesian Economic Studies
1996;32(3):85-107.
Ahsan A, Wiyono N, Setyonaluri D, Prihastuti D, Sowwam YM. Tobacco control country study, Indonesia. Demographic Institute,
Law of the Republic of Indonesia, Number 11, 1995, about Excise; and Law of the Republic of Indonesia, Number 39, 2007,
about the amendment to Law number 11, 1995, about Excise.
Jardine Fleming Research, 1999.
Ahsan A, Wiyono IN, Setyonaluri D, Prihastuti D, Halley YM, Sowwam M. Tobacco control country study. Demographic Institute,
Faculty of Economics, University of Indonesia, 2007. Data processed from SUSENAS.
Guindon GE, Perucic A-M, Boisclair D. Higher tobacco prices and taxes in Southeast Asia: An effective tool to reduce tobacco use,
save lives and generate revenue. World Bank. Health, Nutrition and Population Discussion Paper. Economics of Tobacco Control
Paper No. 11., October 2003.
Data about real per capita GDP and tobacco CPI from the Bank of Indonesia and the Central Bureau of Statistics.
World Bank. Spending for development: Making the most of Indonesia’s new opportunities. Public Expenditure Review, 2007.
Summarized from Chaloupka FJ, Hu TW, Warner KE, Jacobs R, Yurekli A. The taxation of tobacco products. In: Jha P, Chaloupka FJ,
eds. Tobacco control in developing countries. New York: Oxford University Press, 2000.
IV. Demand Studies
This chapter reviews the studies done in
Indonesia about the demand for cigarettes using
aggregate and household level data.73, 74 A substantial
body of literature demonstrates that tobacco products
follow the basic downward-sloping demand curve, and
demand for tobacco products responds to changes in
price. Surveys of the economic literature have found
that price elasticity of demand falls between -0.25 and
-0.50 in high income countries, or that a 10 percent
increase in price results in 2.5 to 5.0 percent reduction
in consumption.75 Theory predicts that demand would
be more responsive to prices in low-income countries,
and this is largely confirmed by empirical evidence.
Studies in low-income settings have reported similar
or greater reductions in consumption in response to
price changes.76
Despite the different datasets and methods, the
range of price elasticities reported in Indonesian
studies is consistent, ranging between -0.29 and -0.67,
or that a 10 percent increase in cigarette prices results
in a decline in cigarette consumption between 2.9 and
6.7 percent. At the same time, studies examined here
predict income elasticities between 0.32 and 0.76, or
that a 10 percent increase in income results in an
increase in tobacco consumption between 3.1 and 7.6
percent. This implies that cigarettes are normal goods.
A tax increase aimed to reduce tobacco consumption,
therefore, needs to be large enough to offset the
increases in consumption expected with rising
household incomes. This finding contrasts with the
U.S., Europe, and other high-income countries, where
an increase in household income is associated with a
decrease in the demand for cigarettes, or that cigarettes
are an inferior good in those settings. Simulations that
take into consideration increases in income that offset
the price effect suggest that a 10 percent increase in
tobacco taxes will result in a net decline in consumption
of 0.9 to 3.0 percent in Indonesia.
This chapter also describes simulations that
predict the impact of a tax increase on spending among
low-income households, health, and tax revenues. A
tobacco tax increase could result in an improvement in
the expenditure distribution if price-sensitive lowincome households reduce spending. A tax increase
that reached the global benchmark of 70 percent of
sales price under the current excise system could avert
between 2.5 and 5.9 million tobacco-related deaths. At
the same time, revenue gains would amount to
additional revenues of Rp 23.8 to 75.8 trillion (US$ 2.6
to 8.3 billion).
Studies Using Aggregate Data
Several studies have examined tobacco demand
using aggregate data. Bird used annual aggregate data
for 1970 to 1994, to estimate an error correction model
that accounts for non-stationary price and income
data.77 The study also took into account several policy
changes that could be expected to have an impact on
tobacco consumption. Dummy variables are included
for the mechanization of filter kretek production by
Gudang Garam and Djarum from 1980 to 1981. Another
series of dummy variables represent the initial years
after lifting a ban on television advertising of tobacco
(1989 to 1994). The models generate long-run price and
income elasticities of -0.43 and 0.83, respectively. The
dummy variable for the relaxation of restrictions on
television advertising was significant and negative,
contrary to expectations. The author explains that this
may be capturing the impact of a change in the tax scale
and establishment of retail prices by the Ministry of
Finance in 1991.
The positive and significant coefficient for the
dummy variable for mechanization confirms that
the widespread introduction of mechanization in
kretek filter manufacturing resulted in a jump in
consumption in the early 1980s. The increase in kretek
production was accompanied by industry investments
in machinery, sophisticated packaging, product
28
distribution, and advertising that probably also
contributed to increased consumption (see Chapter V).
De Beyer and Yurekli used a log linear model
with aggregate time series data for 1980 to 1995.
Their results were reported in a World Bank briefing
paper.78 Limiting their analyses to kreteks, they report
a price elasticity of demand of -0.51 and an income
elasticity of 0.35.
A follow-up study by Djutaharta et al estimates a
series of models using annual (1970 to 2001) and
monthly (1996 to 2001) time series data.79 The models
included dummy variables for the introduction of
health warnings on cigarette packages (set to 1 for the
years 1991 to 2001), for the economic crisis (set to 1 for
the years 1997 to 2001), and a time trend. Annual data
from 1970 to 1996 yield a long-run price elasticity of
-0.57 and income elasticity of 0.46. Using annual data
from 1970 to 2001, their models yield slightly lower
price elasticities ranging from -0.33 to -0.47, and
income elasticities from 0.14 to 0.51. They report that
the financial crisis caused a 22 percent increase in
cigarette consumption. The authors attribute this
increase to stress. The dummy variable for the years
1991 to 2001 representing the introduction of health
warnings was not significant. The linear time trend was
significant in the model using the annual data from
1970 to 2001; from this result, the authors conclude
that consumption increased by about 1 percent
annually independent of changes in price and income.
Using monthly data from 1996 to 2001, they
report price elasticities from -0.32 to -0.43. Income
elasticity was estimated at approximately 0.47,
although the results were insignificant. The authors
note that that the price data include both tobacco and
alcohol. Since alcohol consumption is forbidden in
Indonesia’s predominantly Muslim society, its
consumption is extremely low. However, price
elasticity could be biased with this inclusion.
Guindon, Perucic, and Boisclair analyze an
original time series model using data from Indonesia
for 1970 to 2000, as a part of a larger analysis for the
Southeast Asian region.74 Using a conventional model
not accounting for addiction, they report a short-run
price elasticity of -0.29. Using a myopic addiction
model with a lagged consumption variable, they report
price elasticity of -0.32. Income elasticities are 0.72
and 0.32 for the conventional and myopic addiction
model, respectively.
Marks estimates a series of models for price
elasticity for cigarettes using aggregate data for 1999 to
2002, taking into consideration population and income
growth as well as substitution between cigarette
products.80 He reports price elasticities ranging from
-0.59 to -1.57 based on models using different time
periods. Those estimates based on longer times series
(1999 to 2002) yielded price elasticities between -0.59
and -0.67, and these figures are consistent with
previous studies. Estimates of our price elasticities for
the type of cigarettes range from -0.82 for hand-made
kreteks, -1.37 for machine-made kreteks, and -2.11 for
white cigarettes; these elasticity estimates are higher
because it is relatively easy for a smoker to switch to
different types of tobacco products.73
Based on actual quantities of cigarettes consumed,
the expenditure elasticities confirm that all three types
of cigarettes are normal goods, with estimates of 0.10,
0.65, and 0.74, for hand-made kreteks, machine-made
kreteks, and white cigarettes, respectively, and an
average across product types of 0.46. Marks also
calculates “quality adjusted” expenditure elasticities as
the product of price and quantity reflected in the mean
expenditure share, reasoning that price is an indicator
of quality. Quality-adjusted expenditure elasticities
average 0.63 across the three types; 0.27 for handmade kreteks, 0.77 for machine-made kreteks, and 1.16
for white cigarettes. This suggests that white cigarettes
are superior goods (>1).
Studies Using Household Data
Aggregate data measure tax paid sales rather than
consumption, although this is unlikely to be a serious
problem given minimal illicit trade in cigarettes.
There are, however, disparities between tax-paid
sales and household consumption. Analyses of
household and individual reports of tobacco
consumption allow for a more in-depth exploration by
population subgroups, age, gender, income, and
education. Erwidodo, Molyneaux, and Pribadi use
cross-sectional data from the 1999 SUSENAS
(national household socioeconomic survey) to estimate
an Almost Ideal Demand System (AIDS).81 They report
a price elasticity of -1.0.
Adioetomo et al. use the same cross-sectional
dataset from 1999 to analyze tobacco consumption in
more detail.82 In addition to cigarette prices, the
ordinary least squares models included as independent
variables household expenditures, excise tax dummies,
area, large islands, residence, sex, age, and education.
They report that prices do not significantly impact a
household’s decision to consume tobacco, but prices
affect the number of cigarettes consumed (conditional
price elasticity of -0.6). Poorer households are more
responsive to changes in price, consistent with theory
(-0.70). They also report an income elasticity of 0.76.
Witeolar, Rukumnuaykit, and Strauss use a
household panel of the Indonesian Family Life Survey
in 1997 and 2000 to predict smoking uptake among
men.83 They describe an “alarming trend” in smoking
prevalence for males 15 to 19 years old, rising from 32
percent to 43 percent between 1993 and 2000. They
report that parental education has a significant and
negative effect on smoking participation and intensity
among males 15 to 19 years old, and an individual’s
own education is significant for adult males 20 to 59
years old. Using household budget shares of tobacco,
they report own price elasticity of -0.8. Households
below and above the per capita expenditure median
have an expenditure elasticity of 1.2 and 0.7,
respectively. Per capita household expenditures are not
associated with smoking uptake among males 15 to 19
years old. Male adolescent smokers have a conditional
price elasticity of -0.3 in models including province
and urban fixed effects.
Systematic reporting bias in individual data could
be a factor explaining the non-significant findings
about uptake, given that this finding is inconsistent
with international and regional research.74, 76, 84 Both
studies also report substantial price variation in the
data. Particularly for the cross-sectional data, such
variation may reflect preferences for different types of
cigarettes, quality, and tastes, rather than differences
in actual prices because regional price variations
are negligible.
In making its own revenue forecasts in 2002, the
Excise Tax Directorate has estimated price elasticities
by type of cigarette, specifically -1.12 for hand-rolled
kreteks, -0.52 for machine-made kreteks, and -0.14 for
white cigarettes.85 These estimates have been updated,
and the Tax Directorate now applies price elasticities of
-1.34 for hand-rolled kreteks, -1.12 for machine-made
kreteks, and -0.55 for white cigarettes.86 The studies
used to generate these estimates have not been publicly
released. In prior studies commissioned by the
Ministry of Finance, researchers used data from the
2002 SUSENAS (national household socioeconomic
survey) to estimate three double log ordinary least
squares models to inform about price elasticity for each
of the three major types of cigarettes.87 Estimating the
models separately, rather than simultaneously,
overestimates the price effect because substitution
across the three types of cigarettes is not considered,
nor do they account for increases in income that offset
price increases. Despite hand-rolled and machinemade products advertised to and consumed by distinct
market segments, customers regularly choose from
these products sold side-by-side in the market.
Increases in the prices of one type of tobacco product
that lead to declines in its consumption could be offset
by increased consumption of a different kind or
30
cheaper product. The price elasticities quoted by
the tax directorate are high in comparison with the
other studies, suggesting that, because of these issues
with the estimations, the government could be
overestimating the reductions in demand resulting
from cigarette tax increases.
cigarettes. For the poorest 10 percent (decile 1),
cigarettes amounted to 5.9 percent of total household
spending (3.1 percent on SKT, 2.5 percent on SKM, and
0.3 percent on SPM). For the wealthiest 10 percent
(decile 10), cigarettes amounted to 9.1 percent of total
household spending (1.9 percent on SKT, 6.4 percent
on SKM, and 0.8 percent of SPM). This confirms that
wealthier households purchase different types of
cigarettes that are higher priced, and is consistent with
higher mean expenditures for wealthier households
reported by Adioetomo et al.82
Impact of an Increase in Tobacco Prices on
Low-income Households
To examine the impact of an increase in tobacco
taxes on the poor, Marks simulated the changes in
expenditure on tobacco primarily as a result of a 99
percent increase in the price for hand-rolled kreteks
(SKT), which tend to be consumed by poorer
households.80 The simulation model increases the tax
on SKT to 60 percent (from 22 percent), on SKM to 57
percent (from 46 percent), and on SPM to 46 percent
(from 45 percent). Total changes in quantities and
prices for the three types of cigarettes are used to
calculate new expenditure shares.
The simulation suggests that a large increase in
the price of SKT would result in small changes in
cigarette expenditures overall (-1 percentage point).
For households in the lowest expenditure decile,
slightly increased spending on SKT is offset by changes
in spending on other types of cigarettes. However, the
simulation makes the assumption that price elasticities
of demand are constant across the income distribution.
Assuming that price elasticities are higher among the
poor, a tax increase could result in an improvement
in the expenditure distribution if price-sensitive
low-income households reduce spending.
Table 4.1 first presents the shares in total cigarette
expenditures for each of the three main types of
Table 4.1: The Impact of a Tax Increase on Hand-rolled Kreteks (SKT) on
Tobacco Spending, by Household Expenditure Deciles
Mean Expenditure Share
Actual in 2002
Decile
After a 99% price increase for SKT
SKT
SKM
SPM
Total
SKT
SKM
SPM
Total
1
3.1
2.5
0.3
5.9
3.4
2.3
0.3
5.9
2
3.9
3.8
0.3
8.0
4.2
3.5
0.3
8.0
3
4.6
4.5
0.4
9.4
5.0
4.1
0.3
9.4
4
4.4
5.1
0.5
9.9
4.7
4.7
0.5
9.9
5
4.5
5.5
0.4
10.4
4.9
5.1
0.4
10.3
6
4.4
6.4
0.5
11.3
4.8
5.9
0.5
11.1
7
4.2
6.6
0.5
11.3
4.6
6.1
0.5
11.2
8
3.4
7.3
0.6
11.3
3.7
6.7
0.6
11.0
9
2.8
7.4
0.5
10.7
3.1
6.8
0.5
10.4
10
1.9
6.4
0.8
9.1
2.1
5.9
0.7
8.8
Total
3.7
5.5
0.5
9.7
4.0
5.1
0.4
9.6
Source: Marks, 2003. Hand-rolled kreteks (SKT), machine-made kreteks (SKM), white cigarettes (SPM); based on SUSENAS data for
2002. A 99% price increase raised the tax to 60% of actual sales price for SKT; the model also applied a 57% and 46% tax of sales
price for SKM and SPM.
Impact of an Increase in Tobacco
Taxes on Cigarette Consumption
and Government Revenue
These studies demonstrate that cigarette demand is
inelastic, or that the percentage reduction in demand is
less than the percentage increase in price. Therefore, an
increase in tobacco taxes will result in a net increase in
total government revenue from the tax because many
smokers will continue smoking at higher prices. Sunley,
Yurekli, and Chaloupka examine the impact of an
increase in cigarette tax on cigarette consumption and
tax revenue in 70 countries.88 They conclude that an
increase in taxes that resulted in a 10 percent increase in
price would result in a 3.5 percent reduction in
consumption in low-income countries and a 2.2 percent
reduction in high-income countries. A 10 percent
increase in cigarette prices would increase tax revenues
in all countries, averaging 4.8 percent in low-income
countries and 7.2 percent in high-income countries. The
percentage of revenue generated from a cigarette price
increase is larger in high-income countries because of
the relatively smaller decline in consumption.
A number of studies have simulated the impact of
a tax increase on consumption and revenues using
Indonesian data. Studies using aggregate time series
data and household surveys predict consistent results;
a modest 10 percent increase in cigarette taxes would
reduce consumption by 0.9 to 3.0 percent and increase
cigarette tax revenue by 7.4 to 9.0 percent (Table 4.2).
The relatively larger gains in tax revenues in Indonesia
compared with other developing countries are related
to weaker consumer response to price increases, and
ease of product substitution.
De Beyer and Yurekli estimated the impact on
government revenue based on 1998 SUSENAS data,
assuming no changes in smuggling or substitution.78
They estimate that a 10 percent increase in tax would
result in an increase in price of 3.0 percent and a decline
in cigarette consumption of 2.0 percent. The resulting
increase in tobacco tax revenue would amount to 8.0
percent, or 0.26 percent of GDP. Using similar
assumptions and yearly time series data, Djutaharta et al
predict that a 10 percent increase in tax will result in a
2.6 percent increase in the price of cigarettes, similar to
de Beyer and Yurekli’s estimate of 2.0 percent.79 They
estimate that this would result in a 0.9 percent decline in
consumption and a 9.0 percent increase in tax revenues.
Using a cross-section of national household level
data, Adioetomo et al estimate a higher impact of a tax
increase on cigarettes prices (4.9 percent), and a
decline in consumption of 3.0 percent.82 They predict
that a 10 percent increase in tax would result in a 6.7
percent increase in government revenue. Lastly,
Sunley, Yurekli, and Chaloupka estimate that a 10
percent increase in tobacco tax would result in a 2.4
percent decline in cigarette consumption and a 7.4
percent increase in cigarette tax revenues. Given that
cigarettes have different tax rates, substitution to
products with lower prices and tax rates would likely
result in lower revenues.
Table 4.2: Simulations of the Impact of a 10% Increase in
Cigarette Tax on Cigarette Consumption and Government
Tobacco Excise Revenues
Study
% reduction in
consumption
% increase in
revenue
De Beyer and Yurekli78
2.0
8.0
Djutaharta et al79
0.9
9.0
Adioetomo et al82
3.0
6.7
Sunley, Yurekli, Chaloupka88
2.4
7.4
32
Using data from Indonesia, Guindon et al simulate
the effect of a 5.0 percent increase in real tobacco prices
to 2010 from a 2000 baseline.74 A systematic annual tax
increase is relevant for Indonesia where real prices
have remained largely unchanged since 1980. The
simulations assume price and income elasticities of
-0.75 and 0.50, respectively. They also assume that
the increases in prices are driven solely by tax increases,
and that real GDP growth rates are 4.0 percent annually.
Tax revenue gains would be substantial, amounting to a
cumulative total over ten years of Rp 83.1 trillion
(US$ 9 billion).
We examine the impact of a tax increase on future
mortality and revenues using a static model of the 2008
cohort of smokers (Table 4.3). There are currently
about 57 million smokers in Indonesia. A recent review
reported that between one-half and two-thirds of
smokers would eventually die of tobacco-related
illness.89 Taking into consideration deaths from other
causes but also very low cessation rates in Indonesia, we
assume that the expected mortality among this group is
50 percent (28.45 million). In addition, the health gains
from quitting decline with increasing age. Whereas 95
percent of mortality could be averted by quitting at age
29 years or younger, quitting after 60 years of age
would avert only 10 percent of deaths attributable to
tobacco consumption. On average, mortality averted by
quitting is approximately 70 percent of the expected
number of deaths.
To predict the changes in consumption and
revenues, we examine the results using a price
elasticity range based on published studies in this
review. The low, medium, and high price elasticities
are -0.29, -0.40, and -0.67, based on a consistent range
of estimates.74, 79, 82 We assume that price elasticity is the
same for males and females, and across age groups.
The impact on consumption is composed of the
reduction in prevalence (40 percent of the price
elasticity) and the reduction in smoking intensity
among the remaining smokers (60 percent of the price
elasticity). It is assumed that the remaining smokers
who do not quit face the same mortality risks as before.
The results are reported in Table 4.4. A relatively
small tax increase that raised the tax to 50 percent of
sales price could avert between 0.6 and 1.4 million
deaths. This is approximately 2 to 5 percent of the
expected mortality in this cohort. Given that tobacco is
Table 4.3. The 2008 Cohort of Smokers by Age Group and
Percent of Expected Mortality Averted by Quitting
Age group
Number of
smokers
% of expected mortality
(50% of smokers) that could be
averted by quitting
</= 19
3,794,397
95%
20 - 29
13,562,101
95%
30 - 39
14,240,754
75%
40 - 49
11,929,314
70%
50 - 59
7,272,600
50%
60 - 69
3,320,352
10%
70 +
2,783,116
10%
56,902,633
70%
Totals
Sources: Number of smokers based on smoking prevalence: 2004 SUSENAS data and population
projections for 2008: BAPPENAS, BPS, UNFPA 2005; estimates of the percent of mortality avoided by
quitting in Ranson et al 2002. We assume no increase in prevalence since 2004.
Table 4.4: The Impact of Increasing Tobacco Taxes on Tobaccoattributable Mortality and Government Revenue
Current levels
% Sales price
Increase to
37%
50%
64%
70%
% Government retail price
31%
43%
57%
64%
Reduction in number of smokers (million)
56.9
1.8
5.0
7.3
a
b
Price Elasticities
-0.29
-0.40
2.5
6.9
10.0
-0.67
4.1
11.5
16.8
-0.29
0.6
1.7
2.5
-0.40
0.9
2.4
3.5
-0.67
1.4
4.0
5.9
-0.29
2%
6%
9%
-0.40
3%
8%
12%
-0.67
5%
14%
21%
-0.29
55.1
51.9
49.6
-0.40
54.4
50.0
46.9
52.8
45.4
40.1
-0.29
25.1
59.3
75.8
-0.40
23.0
50.1
59.3
-0.67
18.1
29.1
23.8
-0.29
2.8
6.5
8.3
-0.40
2.5
5.5
6.5
-0.67
2.0
3.2
2.6
Mortality averted (millions)
28.45
Mortality averted (% of expected)
--
Remaining smokers (million)
--
-0.67
Additional excise revenue (Rp trillion)
c
Additional excise revenue (US$ billion)c
a
b
c
41.8
4.6
The government retail price (HJE) is estimated as a proportion of the sales price; see Chapter 3.
The low, medium, and high price elasticities are based on a consistent range of estimates from high quality studies, see Guindon et
al74, Djutaharta et al79, and Adioetomo et al82.
Revenues figures estimated using the 2008 targeted revenues, assuming that 95 percent of excises will come from tobacco.
addictive, the long-run impact would be greater than
the short-run impact; therefore, the results for health
are conservative. At the same time, most smokers (52.8
to 55.1 million) would continue smoking. Higher taxes
among remaining smokers (even at lower consumption
levels) would generate between Rp 18.1 and 25.1 trillion
(US$ 2.0 to 2.8 billion) in additional excise revenues.
Assuming that the HJE is approximately 17-22
percent higher than the sales price, applying the
maximum tax allowable by law (57 percent of HJE)
would be approximately equivalent to increasing the
tax to 64 percent of sales price. This simulation implies
that applying the maximum tax rate could avert 1.7 to
4.0 million tobacco-related deaths, while also
34
It is estimated that increasing the tax to 70
percent of sales price could avert between
2.5 and 5.9 million deaths, or 9 to 21
percent of the expected mortality in the
current cohort of smokers.
generating increased excise revenues of Rp 29.1 and
59.3 trillion (US$ 3.2 to 6.5 billion). It should be noted
that the actual impact of applying the maximum tax
rate would be greater because it would require increases
in taxes for all products, which would reduce
substitution. Similarly, the application of a uniform
specific tax that minimized the differences in tax rates
among cigarette products could also result in additional
lives saved.
The last column predicts the impact of increasing
the tax to 70 percent of sales price, which is the global
benchmark. It is estimated that increasing the tax to 70
percent of sales price could avert between 2.5 and 5.9
million deaths, or 9 to 21 percent of the expected
mortality in the current cohort of smokers. At the same
time, the remaining number of smokers would number
40.1 to 49.6 million people. Therefore, this tax increase
would generate Rp 23.8 to 75.8 trillion (US$ 2.6 to 8.3
billion) in additional excise revenue. Using the 2008
excise targets, this simulation predicts total tobacco
excise revenues of Rp 65.6 to 117.6 trillion (US$ 7.2 to
12.9 billion).
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
Ross H. An overview of the tobacco control economic literature and evidence for Indonesia, Open Society Institute and Research
Triangle Park, June 2005.
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Chaloupka FJ, Warner K. The economics and smoking. National Bureau of Economic Research, 1999.
Chaloupka FJ, Hu TW, Warner K. The taxation of tobacco products. In: Jha P, Chaloupka FJ, eds. Tobacco control in developing
countries. New York: Oxford University Press, 2000.
Bird K. 1999. Industrial concentration and competition in Indonesian manufacturing. Doctoral Thesis. Australian National University, 1999.
Curbing the tobacco epidemic in Indonesia: World Bank. Watching Brief, 2000.
Djutaharta T, Surya HV, Pasay NHA, Hendratno, Adioetomo SM . Aggregate analysis of the impact of cigarette tax rate increases on
tobacco consumption and government revenue: The case of Indonesia. World Bank. HNP Discussion Paper. Economics of Tobacco
Control No. 25, 2005.
Marks S. Cigarette excise taxation in Indonesia, an economic analysis. Partnership for economic growth, BAPPENAS and USAID, 2003.
Erwidodo, Molyneaux J, Pribadi N. Household food demand: An almost ideal. Demand Systems (AIDS), Working Paper, 2002.
Adioetomo M, Djutaharta T, Hendratno. Cigarette consumption, taxation, and household income: Indonesia case study. World Bank,
HNP Discussion Paper No. 26, 2005.
Witoelar F, Rukumnuaykit P, Strauss J. Smoking behavior among youth in a developing country: Case of Indonesia. Working paper, Yale
University. December 2005.
Chaloupka FJ, Wechsler P. Price, tobacco control policies and smoking among young adults. Journal of Health Economics 1997;
16(3): 359-373.
Communication from Director of Excise, 10/2003.
Communication from Director of Excise, 1/2008.
Tjahyaprijadi C, Indarto WD. Analysis of consumption patterns for machine-made kretek cigarettes, hand-made kretek cigarettes, and
machine-made non-clove cigarettes. Economic and Fiscal Policy 2003;7(4). One study was omitted because it lacks a description of
data and analyses. It concludes that the profitability of the industry could be increased by reducing taxes for the firms in the medium
production scales. See: Brahmantio Isdijoso. Alternative study of revenues and excise tax rates for 2004.
Sunley EM, Yurekli A, Chaloupka F. The design, administration, and potential revenue of tobacco excises. In: Jha P, Chaloupka FJ, eds.
Tobacco control in developing countries. New York: Oxford University Press, 2000.
Jha P, Chaloupka FJ, Moore J, Gajalakshmi V, Gupta PC, Peck R, et al. Tobacco addiction. Disease Control Priorities in Developing
Countries (2nd Edition),ed. , 869-886. New York: Oxford University Press. DOI: 10.1596/978-0-821-36179-5/Chpt-46, 2006.
V. Industry Market Structure
and Employment
This chapter describes the structure of the tobacco
industry, tobacco leaf farming and manufacturing,
production and trade, and employment. Most tobacco
leaf and cloves grown in Indonesia are used for
domestic production of cigarettes. Kretek production
increased rapidly after the mechanization of the
industry in the 1970s, and 90 percent of domestic sales
are kreteks. Exports of tobacco leaf, cloves, and
cigarettes do not contribute significantly to foreign
exchange. The market is concentrated with three firms
holding 71 percent of cigarette market share.
From a national perspective, tobacco farming and
manufacturing contribute little to total employment
levels. From a regional perspective, most of tobacco and
clove farmers are in concentrated in specific geographic
areas. About 55 percent of tobacco cultivation area and
more than two-thirds of people employed in tobacco
manufacturing sector are located in East Java.
However, even in East Java, tobacco is farmed on 0.5
percent of total arable land, and tobacco manufacturing
provides 2.9 percent of total employment.
This chapter also presents the results of studies
that simulate the impact of tobacco tax increases on
employment. Research simulating a doubling of the
tobacco tax reports a negative impact in six sectors
directly related to tobacco production. Across 60 other
sectors of the economy, however, there is a positive
impact on economic output, income, and employment.
Based on the net impact, doubling the tobacco tax
could increase employment by more than one-quarter
of a million jobs. This is primarily because tobacco
farming and manufacturing do not rank high (34th and
62nd, respectively, out of 66 sectors) in terms of overall
economic output, employment, and wages. Household
tobacco expenditures are large; diverted to other
productive sectors of the economy, such spending
could stimulate growth.
Some 90 percent of domestic
cigarette sales are kreteks.
Tobacco Farming
Indonesia contributes 2.1 percent of the global
supply of tobacco leaf (Annex 5.1).90 Most leaf is used
for domestic production of cigarettes and other
products; however, between 16 and 47 percent was
exported during 1995 to 2005. At the same time,
Indonesia imports a substantial amount of tobacco leaf,
amounting to 31 percent of domestic production in
2005 (Table 5.1). The US$ value of exports was higher
than imports until 1990 (Annex 5.2). Since 1990,
however, the value of imports is higher than the value of
exports, resulting in a negative net export value (with
the exception of 1999). Tobacco leaf exports do not
contribute significantly to foreign exchange, and
amount to 0.38 percent of total export value.
Less than 1 percent of total arable land is devoted
to leaf production, and this percent has declined
slightly since 2000 (Annex 5.3).91 Fluctuations in leaf
production could be attributable to changes in input
costs for labor, agricultural inputs, and leaf processing;
input costs affect how intensively farmers manage
their yields.92 Smallholders manage nearly all (98
percent) of the tobacco area.93 A study in Central Java
reports that farm sizes for tobacco are only about 0.25
to 0.50 hectares.94 Ninety percent of tobacco arable land
and more than ninety percent of leaf supply originate from
three provinces (East Java, Central Java, and West Nusa
Tenggara) (Annex 5.4). In 2005, 1.7 percent of
farmers cultivated tobacco as one of their crops.95
Tobacco farming accounts for
1.2 percent of full-time employment
in the agricultural sector and 0.53
percent of total full-time employment.
36
Table 5.1: Tobacco Production, Import and Export Ratios of Domestic Production,
and Net Export Value, 1995 to 2005
Year
Domestic
production (tons)
Import ratio
Export ratio
Net export value
(US$ 000)
Tobacco leaf
exports as % of total
export value
1995
140,169
34.21%
15.69%
-54,018
0.41%
1996
151,025
29.84%
22.08%
-49,781
0.44%
1997
209,626
22.47%
20.17%
-53,024
0.46%
1998
105,580
21.99%
47.32%
71,581
0.52%
1999
135,384
30.22%
27.40%
-36,185
0.44%
2000
204,329
16.76%
17.60%
-43,546
0.36%
2001
199,103
22.27%
21.61%
-48,206
0.49%
2002
192,082
17.33%
22.22%
-27,286
0.43%
2003
200,875
14.73%
20.23%
-32,317
0.34%
2004
165,108
21.30%
28.14%
-30,236
0.36%
2005
153,470
31.37%
35.01%
-34,923
0.38%
Source: Ministry of Agriculture and FAO. Net export value is the US$ value of exports minus US$ value of imports.
Tobacco farming, however, is not full-time work;
tobacco is typically rotated on a given plot of land in one
year out of three to avoid depleting the soil of
nutrients.96 Typically, farmers must diversify their crop
holdings to reduce their vulnerability to financial loss.97
To estimate the contribution of tobacco farming to
employment, full-time equivalent (FTE) can be
calculated using the number of person workdays
needed to plant one hectare of tobacco. This suggests
that tobacco farming accounts for 1.2 percent of
full-time employment in the agricultural sector and
0.53 percent of total full-time employment (Annex 5.5).
Clove is the second most important raw material
in the production of kreteks after tobacco. Indonesia
produces 76 percent of the world’s supply of cloves.98
More than 90 percent of production is used
domestically (with the exception of 1998, when 22
percent of production was exported) (Annex 5.6). Most
(72 percent) of annual clove demand is from the kretek
industry.99 An estimated 1.2 million smallholders own
90 percent of clove trees;100 similar to tobacco,
however, clove farming is not full-time. Clove farming
is more dispersed, but more than two-thirds of supply
originates from Sulawesi Island or the provinces of
Central and West Java. Between 1995 and 2002, total
clove production declined as a result of the clove
monopoly established in 1990, which set forth fixed
purchase prices from farmers. After the monopoly was
dissolved in 1998, real clove prices increased 13-fold
(1998 to 2002) and production increased.101 In 2002,
restrictions were placed on clove imports on behalf of
clove farmers in order to force an increase in price.102
Changes in tobacco tax and prices would not be
expected to have a large impact on tobacco and clove
farming nationally for several reasons. From a
macroeconomic standpoint, less than 2 percent of
farmers are involved in tobacco farming, and most of
tobacco and clove farmers are in concentrated in
specific geographic areas. For clove farmers,
restrictions on imports appear to be the key factor
affecting their profits and incomes, compared with
relatively slow changes in demand for cigarettes. Other
factors that strongly affect crop yields and production
levels include weather, seed quality, and availability of
technical and financial support to farmers, as well as
availability of pesticides and fertilizers.94 Both tobacco
and clove farmers already have very diverse crop
holdings and engage in other farm and non-farm
enterprises as a part of income generation activities.
Given that tobacco tends to be rotated on a given plot
of land one year in three, farmers typically cultivate
tobacco as a secondary crop in addition to a range of
other crops including paddy, garlic, chili, potatoes, and
fruit.94 Similarly, clove trees take 3 to 4 years to mature,
and are grown alongside a wide range of other trees or
crops, including coconuts, corn, vanilla, and coffee.103
A study examined the profitability of tobacco
farming in Central Java, in comparison with seven
other crops.94 The authors report that chili, potatoes,
and nilam offer similar or better net profits and rates of
return compared with tobacco (Annex 5.7). They note,
however, that smallholders would need external
investment and technical assistance to transition to
more profitable agricultural products. Such
investments could include specialized agricultural
support or private trading networks that would allow
entry into new markets.
Tobacco farmers sell leaf to middlemen and/or
directly to cigarette companies, especially in Central
and West Java where both large cigarette
manufacturers and farmers are concentrated.94 A factor
affecting the prices received by tobacco farmers is the
“partnership schemes” between tobacco farmers
(particularly those that grow Virginia tobacco) and
large cigarette manufacturers. Manufacturers provide
farmers with resources, technical assistance and small
loans, which are repaid in kind with the sale of leaves
at a price set by the manufacturers. This arrangement
generally places the farmers in a weak bargaining
position. Reports exist about dissatisfaction among
farmers because leaf prices are based on industrydetermined standards of quality.104
Market Structure of the Cigarette Industry
The tobacco market in Indonesia is an oligopoly.
Three firms (Gudang Garam, Djarum, and
Sampoerna/Philip Morris International) hold 71
percent of market share, and seven firms hold 88
percent of the market. The competitive market could
be illustrated by changes in market share for cigarettes
over time (Table 5.2, Annexes 5.8. to 5.9).
Some 90 percent of domestic cigarette sales are
kreteks.105 The distribution of market share was
affected by entry restrictions limiting new capital
investments in kretek manufacturing by multinationals
during most of the 1980s and 1990s.106 These
restrictions did not apply to investments in white
(tobacco only) cigarettes, which are produced by
kretek manufacturers through sub-contracts or their
subsidiaries. This policy was less strict for small
foreign firms that were given permission to produce
white cigarettes in the 1980s. Considering these longstanding entry restrictions into kretek manufacturing,
Philip Morris International’s purchase in 2005 of the
domestic manufacturer Hanjaya Mandala Sampoerna
was a major breakthrough by a large multinational
firm into the kretek market.
Also affecting the market share is the tiered tax
system and introduction of tax by production scales,
which effectively protected small kretek firms from
competition from larger cigarette producers. In 1959,
the gap in tax rates was reported to be as large as 30
percentage points between large kretek and white
manufacturers in 1959.107 However, this difference has
narrowed over time and has recently reversed. In 2008,
lower ad valorem rates were applied to white cigarettes
in comparison with machine-made kreteks from the
same production scales.
The industry’s lobbying power is strengthened
by the concentration of market share in the hands
of a few firms, as well as alliances among cigarette
manufacturers. The assumption in an oligopoly is that
38
Table 5.2: Market Share, Major Cigarette Firms, 1979 to 2005
Cigarette manufacturer (year established)
1979
1989
1998
2005
Gudang Garam (1958)
12
28
47
41
Djarum (1951)
13
28
13
15
British American Tobacco (BAT, 1905)
15
3
NA
4
Bentoel (1930)
8
11
3
3
Sampoerna (1913)
Sampoerna/Philip Morris International (2005)
1
-
3
-
12
-
15
NA
NA
NA
6
10
4
NA
NA
4
3
2
4
Total
63
80
77
88
Other
37
20
23
12
Philip Morris Indonesia (1998)
Sumatra Tobacco Trading Company (STTC)
Noyorono
Sources: Euromonitor 2007, Jardin Fleming Research 1999, Bird 2002. NA = Information not available
tax increases will be passed onto consumers in the
form of prices that match or exceed the increase in tax,
particularly where there is more coordinated behavior
among firms.108 Theory suggests that pricing strategies
for tobacco can be set below short-run profit, because
consumption
is
addictive
and
behavior
among firms allows for future prices to exceed
marginal costs.109 It is notable that industry sources in
Indonesia predict a decline in consumption related to
increased consumer awareness of the health hazards
of smoking while, at the same time, they predict an
11 percent annual growth in industry value related to
price increases.105
Most firms rely on one or a few brands for much
of their revenues. Turning to brand market share,
a handful of brands were responsible for 59 percent
of sales in 2003 (Table 5.3). Although there are
more than 3,000 very small firms, many of these
small producers copy the more popular brands and
would probably not survive under a stricter
regulatory environment.
Table 5.3: Cigarette Brand Market Share (%), 2003
Brand
2003
Gudang Garama
32
A Mild (Sampoerna/Philip Morris)
11
Djarum
10
Marlboro (Philip Morris Indonesia)
7
Total percent of sales
59
Other
41
Source: Euromonitor 2007.
a
Report does not specify Surya, International, Merah
Tobacco Manufacturing
Domestic cigarette production exceeded 220
billion sticks in 2005 (Table 5.4, Annex 5.10). Because
of the popularity of domestically produced kreteks
(tobacco-and-clove cigarettes), most of production is
consumed domestically, and imports are negligible.
Exports accounted for 2 to 3 percent of domestic
production between 1995 and 2005. The government
encourages exports by applying a substantially lower
excise tax for net exporters (see Chapter III).
Multinational companies with regional and
international subsidiaries have an advantage in the
export market, and white cigarettes accounted for
approximately 70 percent of the value of exports in
2004. Nearly half (49 percent) of white cigarette
exports were directed to Cambodia.110 Most of kretek
exports go to Malaysia; exported kreteks have faced
problems in overseas markets outside of Asia. In 1999
several brands of kreteks were withdrawn from the
Australian market on the grounds that they failed to
meet the requirements of the Consumer Product
Information Standard for Tobacco.111 Exports do not
contribute significantly to foreign exchange, and
amount to 0.22 percent of total export value.
The industry has consistently differentiated
between kreteks (tobacco-and-clove cigarettes) and
white (tobacco only) cigarettes. Commercial
production of hand-rolled and packaged kreteks
started in Central Java in the early 1900s, with annual
production levels estimated at 7 billion sticks in 1929.112
Domestic manufacture (with filter machines)
of white cigarettes began in the early 1920s, and
nearly replaced imported white cigarettes by the early
1930s.113 By the 1960s, several hundred medium- and
small-scale kretek firms competed with a few large
multinational foreign-owned companies.112 A number
of government policies were implemented to protect
the market share of the kretek industry.
Among the first was the tiered excise tax system
imposed in 1936, which established preferential tax
rates for kreteks (20 percent) compared with white
Table 5.4: Cigarette Production, Import and Export Ratios, and Value of
Cigarette Exports as % of Total Export Value
Year
Domestic Production
(million sticks)
Import Ratio
Export Ratio
Cigarette Exports as %
of Total Export Value
1995
225,385
5.99%
1.78%
0.26%
1996
216,200
2.38%
2.19%
0.26%
1997
225,417
2.07%
1.87%
0.26%
1998
232,724
4.69%
1.81%
0.21%
1999
221,293
1.62%
2.14%
0.23%
2000
231,185
1.32%
2.69%
0.22%
2001
226,611
0.91%
2.45%
0.31%
2002
209,668
0.26%
2.89%
0.28%
2003
192,340
2.54%
3.12%
0.22%
2004
203,880
2.53%
2.56%
0.20%
2005
220,310
0.48%
2.39%
0.22%
Source: Ministry of Agriculture and FAO.
40
cigarettes (30 percent), along with retail prices for
white cigarettes.114 Production levels were negatively
affected in the 1960s by high clove prices for the kretek
industry; foreign-owned white cigarette firms faced
production setbacks when they were nationalized
between 1958 and 1964, and regained market share
after 1968-69.115
factors were increased affordability of cigarettes
between 1980 and 1998116 and transmigration
programs that moved large numbers of Javanese (and
their habits) to the outer islands.112
A brief decline in kretek production in 1991 could
be related to the change in the tax system, which
incorporated different retail prices by industry
production volume. Higher retail prices were imposed
on firms with the highest production scales. The
rationale was to protect small firms, by increasing the
retail prices for products from large firms — thereby
reducing their demand.106 Sales for hand-rolled kreteks
and white cigarettes increased in 1991 relative to
machine-made kreteks. Between 2001 and 2003,
production dropped in the machine-made kretek sector
but 2001 production levels were regained by 2005.
Given that household data demonstrated an increase in
consumption during the same period, these changes
could be explained by the industry’s response to a series
of increases in the excise tax (see Chapter VI).
Cigarette manufacturing was transformed by
mechanization in the 1970s. Three major kretek
manufacturers (Bentoel, Gudang Garam, and Djarum)
received government approval to mechanize part of
their production between 1970 and 1980, while other
firms were denied licenses to introduce new
machinery.115 In 1974, kretek and white cigarette
production was nearly equal. Ten years later, kretek
production was more than three times greater than
white cigarette production, and production of
machine-made kreteks continued to increase steeply to
more than 200 billion sticks by 2000 (Graph 5.1). The
increase in kretek production was accompanied by
industry investments in machinery, sophisticated
packaging, product distribution,107 and advertising115
that contributed to increased consumption. Other
Most firms in the tobacco product manufacturing
sector are companies that dry and process leaves
Production (million sticks)
Graph 5.1: Cigarette Production, 1960 to 2005
250000
Total cigarette production
200000
Kretek
White (tobacco only)
150000
100000
50000
0
1960
1965
1970
1975
1980
1985
1987
1989
1990
1995
2000
2005
Year
Sources: Ministry of Agriculture, Ministry of Finance, excise tax bureau, FAO, and industry estimates. Cigarette production
accounts for approximately 97% of tobacco sales (Ministry of Industry, 2005). Other tobacco products consumed at low
levels and among specific population subgroups include cigars, klobot (corn husk wrapped cigarettes); klembak (incense
clove cigarettes), and sliced leaves or chewing tobacco.
In the 1970s, the industry’s contribution
Tobacco manufacturing wages rank
to manufacturing employment was
low, at 20th out of 24 manufacturing
about 28 percent compared with less
sectors, and average Rp 662,149
than 6 percent today.
(US$ 73) per month.
(Annex 5.11). In examining employment, we focus on
cigarette firms, which would represent the largest
employers in tobacco manufacturing. The contribution
of cigarette manufacturing to total manufacturing
employment has declined steeply over time. In the
1970s, the industry’s contribution to manufacturing
employment was about 28 percent compared with less
than 6 percent today. Although the absolute numbers
have risen slightly, this increase has not matched rapid
growth in the manufacturing sector as a whole. The
contribution of cigarette manufacturing to total
employment has remained 0.3 percent or less since the
1970s (Annex 5.12). These figures are based on largeand medium-size industries. In 2004, it was estimated
that some 10,000 additional people were working in
very small-scale cigarette firms117; however, this
changes little the industry's contribution to total
employment. In comparison with other employment
categories, cigarette manufacturing ranks number 48
out of 66 sectors in contributing to total employment
nationally (Annex 5.13).
employed in the tobacco manufacturing sector are in
East Java alone, and more than 90 percent are in East
and Central Java (Annex 5.16). The largest number of
jobs is in East Java, where tobacco manufacturing
provides 2.9 percent of total employment. In certain
areas, the contribution of employment is high; in
Kudus, for example, it was estimated that 6.4 percent of
the population worked in cigarette manufacturing.117
Different sources provide different estimates
about the number of large and medium firms in
cigarette manufacturing. It has been estimated that the
number of cigarette firms fluctuated from 300 in the
mid 1970s, 130 in the early 1990s, and 245 in 2004
(Annex 5.14). However, their geographic distribution
has remained remarkably concentrated, and most are
near regions where tobacco is grown. Between 1961 and
1993, kretek firms (of all sizes) were located in only 14
districts, with the majority in Kudus (Central Java), and
Kidiri and Malang (East Java) (Annex 5.15).107
Estimates suggest that more than two-thirds of people
Industry mechanization is a key factor affecting
employment in cigarette production. In the laborintensive hand-rolled industry, a pair of women
produces between 3000 and 4000 cigarettes in a
single day, or some 450,000 cigarettes per person per
year.96 In contrast, modern machinery can produce as
many as 16,000 cigarettes per minute. In an attempt to
minimize the impact of mechanization on employment
in the hand-rolled sector in the 1970s, the government
initially restricted the number of licenses issued for
cigarette mechanization, and the proportion of
production each firm could mechanize was limited to
10 percent. Realizing that compliance was low, this
proportion was later amended to 50 percent, then 66
percent.115 In absolute terms, the employment numbers
have remained relatively stable, with slight increases in
the late 1990s.
Wages in cigarette manufacturing are
approximately two-thirds of average manufacturing
wages. Women represent 81 percent of workers in the
tobacco manufacturing sector. Wages for women rolling
cigarettes are piece-rate. Tobacco manufacturing overall
ranks 20th out of 24 manufacturing sectors in terms of
wages, amounting to Rp 662,149 (US$ 73) per month.119
In the early 1990s, work conditions in hand-rolled
42
cigarette manufacturing were considered poor, and
included exposure to chemicals and particulate matter
that could have negative effects on reproductive and
respiratory health.120 Some research has identified the
problem of child labor in tobacco farming and cigarette
manufacturing in Indonesia.121
Studies Evaluating the Impact of Taxation
on Employment
Similar to other countries with domestic tobacco
industries, there is a concern that an increase in
tobacco taxes would negatively impact employment in
tobacco agriculture and manufacturing. Estimating the
impact of reduction in tobacco spending requires a
consideration of how spending from tobacco is
reallocated to other commodities or investments.
Ahsan and Wiyono estimated an input-output analysis
to simulate the impact of an increase in tax, taking into
consideration the interdependence of economic
sectors.122 Based on price and income elasticities from
Djutaharta et al (see Chapter IV),123 they simulated a
100 percent increase in tobacco tax, resulting in an 8.9
percent decline in tobacco consumption. Because
spending on tobacco would be diverted to other
commodities, they estimate that six sectors would be
negatively impacted (trade, fertilizers and pesticides,
paper manufacturing, clove farming, tobacco farming,
and cigarette manufacturing). However, 60 other
sectors would benefit from a decline in tobacco
consumption, because resources would be directed
from tobacco spending to these sectors. Therefore,
there is a positive net impact in economic output by Rp
335.4 billion (US$ 36.9 million) (0.008 percent), an
increase in household income by RP 491.6 billion (US$
54.1 million) (0.08 percent), and an increase in
employment by 281,135 jobs (0.3 percent).
An increase in economic output would result
primarily because tobacco farming and manufacturing
are not ranked high relative to other sectors in their
overall contribution to the economy. Tobacco
manufacturing and farming are ranked 34th and 62nd
out of 66 sectors in terms of their overall output,
employment, and wages.124 Wages, in particular, are
relatively low in cigarette manufacturing and very low
in agriculture (tobacco and other crops). A positive
increase in household income would result given that
household expenditures on tobacco are relatively large.
Reductions in spending on tobacco are estimated to
result in higher spending on food and other products.
Diverting household expenditures from tobacco to
spending on other products would channel money to
other productive sectors of the economy, which could
stimulate growth. Simulating low and high reductions
in tobacco consumption, Ahsan and Wiyono report
that reductions in tobacco consumption would result
in increased output in the economy as a whole. They
conclude that substantial tobacco price increases
would create net positive benefits on output,
income, and employment. Additional tax revenue
for the government could be directed to support
any labor transitions from tobacco to other sectors
of the economy.125
Other studies examine employment more
narrowly, and do not consider that a reduction in
spending for tobacco would free up money that that
could be spent on other goods and services, which
would, in turn, create jobs in other sectors of the
economy. Marks predicted the impact of an increase in
tax on employment in the hand-rolled kretek sector.96
He applies a price elasticity estimate of -0.78 and a tax
increase that would result in an 80 percent increase in
real price, resulting in a 49 percent reduction in
demand for SKT. Based on average productivity per
worker, he predicts a loss of more than 86,000 jobs in
the hand-rolled kretek sector — this amounts to about
half of the workforce in kretek manufacturing. Several
of these assumptions, however, are questionable.126 The
reductions in demand are likely overestimated because
of the high price elasticity applied (-0.78). The model
assumes that marginal and average productivity are
equal. A more realistic assumption is that marginal
productivity is lower than the average productivity,
and this would result in a lower impact on employment
regardless of the assumptions applied.
Separate but important considerations for the
tobacco industry are the political gains in maintaining
the hand-rolled kretek sector, and the financial gains
made by maintaining a tiered tax system in which the
highest tax rates can be legally avoided. A separate
Ministry of Industry report puts forward a “roadmap”
to enable the tobacco industry to secure their business
over the short, medium and long term.127 The report
estimates the total amount of employment attributable
to the tobacco industry as 10.35 million jobs. In
comparing the figures in this report with statistics
released by the Central Statistical Bureau (BPS) or
other government agencies, the government data are
less than half of industry figures for direct employment
in tobacco manufacturing and tobacco and clove
agriculture (Table 5.5).
Moreover, the Ministry of Industry estimates use
total numbers of tobacco and clove farmers rather than
full-time equivalents, which are more accurate for parttime work. The fourth column reports the BPS-adjusted
figures for full-time equivalent for tobacco farming,
considering that clove trees typically take 3 to 4 years to
mature, and that a farmer would dedicate 20 to 33
percent time to their cultivation over these years. This
suggests that direct employment from tobacco and
cigarette manufacturing is between 1.0 and 1.2 million
people. More important, from a policy perspective, is
the percentage of total employment provided. Direct
employment in tobacco manufacturing and production
amounts to 1.1 to 1.2 percent of total employment.
The report attributes more than half of their
employment figures (5.45 million) to indirect
employment (retailers, printers, and transportation,
etc.), which cannot be verified by other sources. They
estimate, for example, that cigarettes contribute 4.9
million retail jobs, or about 18 percent of the total
workforce in the entire service industry. It is unlikely
that nearly 1 in 5 people working in the service sector
depends on tobacco sales for their livelihood. Retailers
and street vendors generate income not only from
tobacco sales but also from other products, including
perishable goods (cooked food, fruit, vegetables, and
flowers), gum, telephone cards, magazines and books,
small consumer electronics, and others. Any reduction
in spending on tobacco would be offset by increased
spending on other products.
Not considered in these analyses is industry
spending in the marketing and advertising sectors.128
Estimates in 2004 suggest that major Indonesian
cigarette companies spent US$ 134.4 million (Rp 1.2
trillion) on direct electronic and print advertising,
consistent with previous reports that the industry
contributes about 5 to 7 percent to direct adverting
revenues annually.129 It is perceived that local
Table 5.5: The Contribution of Tobacco Manufacturing to Direct Employment:
Comparing Estimates from Different Sources
Employment
category
Tobacco manufacturing
Ministry of
Industry
estimates
BPS and other
government
estimates
Full-time
equivalent
% of total
employment
600,000
258,678
258,678
0.28
Tobacco farmers
2,400,000
683,603
503,458
0.53
Clove farmers
1,500,000
1,200,000
240,000-396,000
0.26-0.42
Total
4,500,000
2,142,281
1,002,136-1,158,136
1.07-1.23
Source: Ministry of Industry 2007, Central Statistical Bureau (BPS), most recent years.
44
governments generate a large amount of tax revenue
from cigarette billboards; in reality, taxes from
billboard advertising generate less than 2 percent of
total district income on average.130 However, the
industry spends an undetermined amount of funds on
promotions and indirect advertising, including
sponsorship of concerts and cultural and social events,
as well as coupons and price discounts. Some of this is
channeled via foundations that are funded in large
part by cigarette sales and serve as advertising by
promoting a positive image of tobacco companies.
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
FAOSTAT, Food and Agricultural Organization Statistics Division.
Ministry of Agriculture, various years.
Global Agricultural Information Network (GAIN) Report #4027. Indonesia Tobacco and Products Annual 2004.Washington, DC:
United States Department of Agriculture; 2004.
Ministry of Agriculture, Republic of Indonesia. Agricultural Statistics 2006.
Keyser JC, Juita NR. Smallholder tobacco growing in Indonesia: Costs and profitability compared with other agricultural enterprises.
World Bank, HNP discussion paper, February 2007.
Ministry of Agriculture.
Marks S. Cigarette excise taxation in Indonesia, an economic analysis. Partnership for economic growth, BAPPENAS and USAID.
July 2003.
Kawague T. Chapter 11. Income and employment income and employment generation from agricultural processing and marketing
at the village level: A study in Upland Java. In: von Braun, J, Kennedy E, eds. Agricultural Commercialization, Economic Development,
and Nutrition. International Food Policy Research Institute, 1994.
FAOSTATS, Food and Agricultural Organization Statistics Division.
Jardine Fleming Research, estimate for 1998.
Directorate of Processing and Marketing of Farming Products, Directorate General for Development of Processing and Marketing of
Farming Products, Ministry of Agriculture. In Chapter 3. The Tobacco Source Book: Data to support a national tobacco control
strategy, Ministry of Health Republic of Indonesia, 2004.
Information - Farming Commodity Price at in the Domestic Market 2002, Directorate of Processing and Marketing of Farming Products,
Directorate General for Development of Processing and Marketing of Farming Products, Ministry of Agriculture. In Chapter 3, The
Tobacco Source Book: Data to support a national tobacco control strategy, 2004, Ministry of Health Republic of Indonesia.
Decree No.538/2002, 5 July 2002, In: The Tobacco Source Book.
Bennett CPA, Marks SV, Muslimin L. The clove monopoly: Lessons for the future. Trade Implementation and Policy Project. US Agency
for International Development and Ministry of Industry and Trade, Republic of Indonesia, Jakarta. November 1998.
Global Agricultural Information Network (GAIN) Report #3021. Indonesia Tobacco and Products Annual 2003. Washington DC: United
States Department of Agriculture; September 16, 2003.
Euromonitor International 2007.
Bird K. Industrial concentration and competition in Indonesian manufacturing. Doctoral Thesis. Australian National University, 1999.
Tarmidi L. Changing structure and competition in the kretek cigarette industry. Bulletin of Indonesian Economic Studies 1996;32(3):85-107.
Chaloupka FJ, Hu T-W, Warner KE, Jacobs R, Yurekli A. Chapter 10. The taxation of tobacco products. Tobacco Control in
Developing Countries.
Becker GS, Grossman M, Murphy KM. An empirical analysis of cigarette addiction. American Economic Review 1994;84(3):396-418.
CBS, Indonesia foreign trade statistics, 2004.
Employment Trends in the Tobacco Sector, ILO Geneva 2003.
Castles L. Religion, politics, and economic behavior in Java: The Kudus cigarette industry. Cultural Report Series No. 15, Southeast
Asian Studies, Yale University, 1967.
Reid A. From betel chewing to tobacco smoking in Indonesia. Journal of Asian Studies 1985;XLIV:3.
Istyastuti AW. Policy on in-direct tax policy: Case study on tobacco excise in Indonesia 1969-1992. Post Graduate Program, Social
and Economic Science, and Specialized Political Science University of Indonesia, 1992.
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
Bird K. Industrial concentration and competition in Indonesian manufacturing. Doctoral Thesis. Australian National University, 1999.
save lives, and generate revenue. World Bank. Health, Nutrition and Population Discussion Paper. Economics of Tobacco Control
Central Bureau of Statistics.
International Labor Organization, Employment trends in the tobacco sector: Challenges and prospects. Report for discussion at the
Tripartite Meeting on the Future of Employment in the Tobacco Sector, Geneva, 2003.
Central Bureau of Statistics, 2003.
Kemp M. Inside Indonesia 1993.
Indrasari T, Anarita P. Child labor on tobacco plantations, Bandung, 2002; and Manning C. The economic crisis and child labour in
Indonesia, Australian National University. International Labour Office, International Programme on the Elimination of Child Labour
Geneva, 1999.
Ahsan A, Wiyono Ir. N. The impact analysis of higher cigarette prices to employment in Indonesia. Demographic Institute, Faculty of
Economics, University of Indonesia, September 2007.
Djutaharta T, Surya HV, Pasay NHA, Hendratno, Adioetomo SM. Aggregate analysis of the impact of cigarette tax rate increases on
tobacco consumption and government revenue: The case of Indonesia. World Bank. HN Discussion Paper. Economics of Tobacco
Control No. 25, 2005.
Central Bureau of Statistics 2003, in Ahsan A, Wiyono IN, Setyonaluri D, Prihastuti D, Halley YM, Sowwam M. Tobacco Control Country
Study, Indonesia, Demographic Institute, Faculty of Economics, University of Indonesia, 2007.
Jha P, Chaloupka FJ. The economics of global tobacco control. BMJ 2000;321;358-361.
See a review of this paper in: Ross, H. An overview of the tobacco control economic literature and evidence for Indonesia, Open
Society Institute and Research Triangle Park, June 2005.
Ministry of Industry. The 2007-2020 roadmap of industry of tobacco related product and excise policy, March 2007.
Bird K. Advertise or die: Advertising and market share dynamics revisited. Applied Economics Letters 2002;9(12):763-767.
Indonesia Advertising Industry. Persatuan Perusahaan Periklanan Indonesia (PPPI), US Department of Commerce, 2006.
East Asia decentralizes: Making local government work. The World Bank. May 2005.
46
VI. Tobacco Tax Administration
This chapter describes excise revenues and factors
related to setting tobacco tax levels. Tobacco excise
contributed 5.7 percent of total government revenues
in 2007. The excise target (tobacco and alcohol) for
2008 is Rp 44 trillion (US$ 4.8 billion). The factors
taken into consideration in setting tobacco taxes
include the excise law, revenue targets, employment,
and industry development. The law and other policy
documents from the Ministry of Finance state that
the philosophy behind excise taxation is to reduce
consumption and control the distribution of unhealthy
or immoral products. However, in practice, health
considerations are not a factor in setting the tobacco
tax rates. Other normative factors related to the
government’s role in tobacco taxation include
poverty reduction, market failure, child protection,
and recovering the losses to society because of
tobacco consumption.
Despite tax scales favoring small firms and handrolled products, the contribution of production and
excise from hand-rolled kreteks and small firms has
declined between 2000 and 2005, and large firms in
both the machine-made and hand-rolled sectors
contributed the vast majority of production. The tiered
tax rates by production levels allow firms to incur
lower taxes by reducing their production levels to fall
within lower tax brackets, establishing new small
firms, or buying up or contracting production to small
firms. The Ministry of Industry developed a “roadmap”
with the goal of increasing cigarette production to 260
billion sticks by 2020.131 Its stated goal is to achieve
healthy communities, but is more likely to have the
opposite effect. The plan’s intention to increase
cigarette production and reduce nicotine levels will
probably lead to worse health outcomes. If the
government were committed to healthy communities,
however, higher taxation could efficiently increase
government revenues, improve health, and increase
net employment across all sectors.
Revenue from Tobacco Excise
Tobacco excise forms an important source of
government revenues, amounting to 8.4 percent of tax
revenues and 5.7 percent of total government revenues
in 2007. Tobacco excise has accounted for 4 to 6
percent of total nominal revenues between 1979 and
2000 (Graph 6.1, Annex 6.1). Tobacco excise revenues
peaked in 2002 to 2003 corresponding with a series of
tax increases. The decline after 2003 corresponds with
weak or no increases in tobacco excise rates between
2004 and 2007. Excise consists of taxes on tobacco,
ethyl alcohol, and alcoholic beverages but the vast
majority is from tobacco.
In the 1970s, most tobacco tax revenue was
generated from hand-made products. In 1979, 59.0
percent of excise tax revenues were derived from
handmade kreteks (SKT), compared with 26.1 percent
from white cigarettes (SPM) and 15.0 percent from
machine-made kreteks (SKM) (Annex 6.2). Machinemade kreteks were just starting to be produced on a
large scale through mechanization in 1979. Just 10
years later, in 1989, 78.7 percent of tobacco excise tax
revenue was derived from machine-made kreteks, 16.1
percent from hand-made kreteks, and 5.3 percent from
white cigarettes. With fluctuations in the relative
contributions of hand- and machine-made kreteks, the
contributions of the three products to revenue have
remained similar through the 1990s and to date. In
2005, machine-made kreteks contributed 73.4 percent
of total tobacco excise tax revenue, followed by
hand-made kreteks (19.6 percent) and white cigarettes
(6.9 percent).
Factors in Determining the Tobacco Tax Rates
Law No. 11/ 1995 on Excise Taxation. 132 Law
No. 11 passed in 1995 sets the maximum excise tax for
tobacco at 250 percent of the manufacturers’
production cost or 55 percent of the retail sale price
(HJE). This law was amended in 2007, and the cap
increased to 275 percent of the manufacturers’
Graph 6.1: The Contribution of Tobacco Excise as a Percent of Total Revenue
and as a Percent of Total Tax Revenue, Nominal Terms, 1979 to 2007
12%
as % of total revenue
as % of tax revenue
10%
8%
6%
4%
2%
2006
2007
2005
2004
2003
2001
2002
1999-0
1998-9
1996-7
1997-8
1994-5
1995-6
1992-3
1993-4
1990-1
1991-2
1988-9
1989-90
1987-8
1985-6
1986-7
1983-4
1984-5
1982-3
1980-1
1981-2
1979-80
0%
Year
Sources: Ministry of Finance, excise tax reports and budget statistics, various years.
production cost or 57 percent of the retail sales price.133
The government aimed to increase the maximum tax
rate from 55 percent to 65 percent to enable long-term
revenue planning but failed to gain support for this
increase. The justification for the relatively small
increase was to maintain jobs in the tobacco industry.
Large (machine-made) cigarette manufacturers are
closest to reaching the excise tax caps because they
face the highest tax rates (36 and 34 percent)
compared with hand-rolled manufacturers in the
lowest production scale (0 and 22 percent). The law
identifies the role of the government in using excises to
control the consumption of commodities (tobacco,
alcohol or other products) to reduce health or
environmental risks, or to promote justice and equity.
The 2007 revision of the excise law also puts
forward a revenue-sharing scheme. Two percent of
tobacco excise revenue will be distributed to tobacco-
producing regions based on their excise contribution.
Using the target excise revenues for 2008 and assuming
that 95 percent of excises are from tobacco, the 2
percent earmark will amount to approximately Rp 836
billion (US$ 92 million) for tobacco-producing regions.
The distribution of the revenue is as follows: 30 percent
is given to the provincial administration, 40 percent to
the administrations of the producing districts or
municipalities, and the remaining 30 percent to other
second-level administration in tobacco-producing
provinces. The revenues are to be allocated to tobacco
industry improvements, including the quality of raw
materials for production, tobacco industry development,
social environment development, socialization about
excise tax programs, and eradication of counterfeit
products and fake excise ribbons.
Achieving revenue targets. The primary reason
for intervening in the tobacco market is to generate tax
48
revenues. Similar to other budget line items, the
government puts forward an annual revenue target for
excise, and the targets are adjusted within a given year
to meet gaps or come closer to actual revenues. To
achieve these targets, the Ministry of Finance adjusts
the ad valorem rates, specific per stick tax, the number
of firm production scales, or their cut-off points. The
targeted (tobacco and alcohol) excise revenues for 2008
are Rp 44 trillion (US$ 4.8 billion), amounting to 1.0
percent of GDP.134 These budget planning figures
project that the contribution of excise will remain about
the same as 2006 and 2007, at 5.8 percent of total
revenues and grants and 7.6 percent of tax revenues in
2008 (Annex 6.3).
Protecting the domestic kretek industry.
During the 1920s, foreign-owned multinationals were
successful in establishing white (tobacco only)
cigarette production and imports that rivaled the
production of kreteks.135 By 1936, the government
implemented a differential excise tax system, with a
higher tax on white cigarettes compared with kreteks,
to protect the market share of the domestic kretek
manufacturers. Whereas the difference in tax rates
between large kretek and white manufacturers was as
large as 30 percentage points in 1959,136 this difference
has narrowed over time. Between 2000 and 2007, the
ad valorem tax rates were the same for machine-made
kreteks and white cigarette producers, and retail prices
for white cigarettes were lower — presumably because
they do not use cloves in their production. In 2008,
however, differential ad valorem rates were imposed
again, but with lower ad valorem rates for white
cigarettes in comparison with machine-made kreteks
from the same production scales. Protection of the
kretek industry, therefore, no longer appears to be a
consideration in setting tobacco tax rates.
Promoting employment. Creating employment
opportunities has been the focus of central government
policy, and unemployment levels have stabilized in
recent years at approximately 10.3 percent.137 In 1992,
entry restrictions in the kretek market were also
relaxed under certain conditions that promoted
employment. Firms were required to start with the
production of hand-rolled kretek, and could progress
to the production of machine-made kreteks at a ratio of
2:3 with hand-rolled cigarettes.138
There are two main ways in which the tobacco tax
scales are designed to promote employment in small
firms. First, there is a large difference in tax rates
between hand-rolled and machine-rolled products.
The ad valorem tax rates range from 22 to 36 percent for
machine-made kreteks and 15 to 34 percent for machinemade white (tobacco only) cigarettes. The rates for handrolled (unfiltered) kreteks, however, are much lower, at
0 to 18 percent. Other hand-rolled products produced on
a very small scale (<1 percent of production) are taxed at
only 8 percent, including klobot (cornhusk cigarettes),
klembak (incense clove cigarettes), and hand-rolled
white (tobacco only) cigarettes.
Second, the excise system is based on production
volume, whereby firms with the highest production
pay the highest taxes. The rationale is to protect small
firms, by reducing demand for products from large
firms through increases in their sales prices.138 The
percent of tobacco excise revenue from hand-rolled
kreteks (SKTs) increased from 13 to 14 percent in 1996
to 1998 to approximately 23 percent in 2001 to 2003.
This increase could be attributed in part to preferences
in the excise tax rates and minimal retail prices that
favored hand-rolled kretek producers (Table 6.1,
Annex 3.2).
Firms with the highest production pay the
highest taxes. The rationale is to protect
small firms by reducing the demand for
products from large firms.
In 1999, there was a decline in retail price (HJE)
for SKT produced by the smallest firms (from Rp 80 in
1998 to Rp 55 in 1999). An increase occurred from 4 to
12 percent in the ad valorem tax applicable to the firms
with smallest production levels in 2000, although this
rate was lowered to 10 percent later the same year and
returned to 4 percent one year later. In addition, the
number of production scales for SKT increased from 3
in 1999 to 4 in 2001, with the lowest tax rate applicable
to the lowest production scale. In 2002, a tax increase
was applied to SKT but only for the largest firms. There
were no changes in the tax rates for SKT between 2003
and 2007 and only slight increases in HJE between
2005 and 2007. Small hand-rolled kretek firms
enjoyed the lowest tax rate (4 percent) from 2001 to
2007 (Annex 3.2).
In July 2007, the tax directorate applied an
additional specific per-stick tax to the three main types
of cigarettes, including SKT. Initially, the specific
per-stick tax also corresponded with the production
scales, where the highest per stick rate (Rp 7) was
applied to the largest firms compared with Rp 3 for the
smallest. In 2008, the system imposed a specific tax of
Rp 35 for all cigarette products with the one exception
of SKTs at the lowest production scale (Rp 30). The tax
rates for other types of tobacco products also changed
during the same period and likely had an effect on the
share of revenue by type of product.
Despite large adjustments in the tax scales to
promote production from small firms in 2000 to 2002,
their contribution to production and excise declined
between 2000 and 2005 (Table 6.2). SKT production
from small firms contributed 9.9 percent of total
production in 2000 compared with 5.8 percent in
2005; a large decline can be seen for small SKM firms
from 13.4 to 5.4 percent. In addition, large SKM and
Table 6.1: Percent Tobacco Excise Revenue by Type of
Cigarette, and Change in Tax Rates for Hand-rolled Kreteks
(SKT), 1996 to 2007
Change in tax rates for SKTa
% of excise revenues
HJEb
Year
SKM
SKT
SPM,
other
1996
0.77
0.13
0.10
1997
0.78
0.12
0.10
+
1998
0.77
0.14
0.09
+
1999
0.72
0.17
0.11
–
+
–
+/–
c
2000
0.71
0.20
0.10
++
d
2001
0.67
0.23
0.10
+++
e
+
Ad valorem
Production
scale
c
+/–
xx
d
x
–
+
x
f
x
g
x
2002
0.66
0.23
0.11
2003
0.69
0.23
0.09
2004
0.72
0.21
0.08
No change for any product
2005
0.73
0.20
0.07
+
No change for SKT
Notes: a Changes in tax rates for other products are not described here; see Annex 3.2. Noted here is the year
in which the change took place, which may be different from the year in which the ministerial decree was
issued. + indicates an increase and - indicates a decline. b Retail price. c Increase for lowest production scale
and decrease in highest. d Two changes occurred in one year. e Three changes occurred in one year. For third
change, uniform HJE applied to all but lowest production scales. f Decrease in lowest production scale only
from 12 to 4%. g Increase for the highest production scale only.
50
Table 6.2: Total Production and Tobacco Excise Revenue for
Machine-made Kreteks (SKM) and Hand-rolled Kreteks (SKT), by
Firm Production Levels, 2000 and 2005
2000
Type
Firm production levels
Production
2005
Excise
Production
Excise
SKM
I
II
III
>2 billion
≤500 million
39.7
5.3
13.4
63.0
5.4
9.6
47.2
6.1
5.4
68.8
4.4
5.4
SKT
I
II
III A&B
>2 billion
≤500 million
28.3
3.4
9.9
19.1
0.9
2.0
24.3
11.2
5.8
17.8
1.7
1.9
Source: Roadmap for the Tobacco Product Industry, Ministry of Industry 2007.
Despite preferential tax policies, the
percentage of production from small
kretek firms declined from 23 percent in
2000 to 11 percent in 2005.
SKT firms (>2 billion per year) contributed 72 percent
of production and 87 percent of tobacco excise revenues
in 2005. In 2006, six large firms contributed 88 percent
of excise tax revenues and 75 percent of total
production.139 Despite this unsuccessful effort to
promote small industry through preferential excise, the
tobacco tax schedules continue to favor small firms
(see Chapter III, Table 3.1).
Promoting the tobacco industry. Early in 2007,
the Government of Indonesia led by the Ministry of
Industry released “The Roadmap of Tobacco Products
Industry and Excise Policy.” The roadmap has three
aims: to increase government revenue, promote
employment, and improve health. It is proposed to
achieve these goals via increasing cigarette production
to 260 billion sticks by 2020. The plan is supported by
the Ministry of Finance, the Ministry of Manpower and
Transmigration, the Ministry of Agriculture, and the
cigarette manufacturers associations (GAPPRI and
GAPRINDO).
The government states that this “roadmap” is in
line with the philosophy of implementing excise taxes
to reduce consumption and promote healthy
communities.140 This plan is flawed in several ways. A
decline in cigarette sales volume does not necessarily
imply a reduction in government revenue. Demand for
tobacco products is inelastic; that is, the percentage
reduction in demand is less than the percentage
increase in price. In other words, some smokers would
reduce consumption and many others would continue
smoking, even at higher prices. The studies described
in Chapter IV suggest that a 10 percent increase in tax
will result in a decline in consumption of 0.9 to 3.0
percent. With a relatively small impact on the tax base,
the tax increase would result in an increase in
government tax revenues regardless of reductions in
sales volume for cigarettes. Therefore, the most
The most efficient way to increase
government revenues is to increase
tobacco taxes, rather than promoting
higher tobacco consumption among
females and youth given that
63 percent of adult males already
smoke in Indonesia.
efficient way to increase government revenues is to
increase tobacco taxes rather than promoting higher
tobacco consumption among females and youth given
that 63 percent of adult males already smoke in
Indonesia. The industry states that they plan to export
much of the increase in production. However, such
plans could be hampered by lower production costs in
other countries as well as increasingly strict
regulations about cigarettes additives and health
warnings with the implementation of the FCTC
globally. For example, in the US, a proposed bill
(backed by Philip Morris) bans the import of cigarettes
with additives other than menthol.141
To improve health, the roadmap proposes to
reduce the nicotine levels in cigarettes by 2020. To be
clear, the business model of the cigarette market is to
create, sustain demand for, and deliver nicotine, a
highly addictive drug.142 Reducing nicotine levels would
result in compensating behaviors among smokers,
such as smoking more cigarettes or inhaling more
deeply, to achieve the same levels of nicotine intake.
Compensating behaviors such as smoking more or
more intensely can result in worse health outcomes
because of higher exposure to carbon monoxide and
other chemicals in the cigarette smoke. Studies
conclusively demonstrate no health benefits in
reducing nicotine levels.143
Moreover, regardless of the nicotine levels in
tobacco leaf, chemical additives can enhance nicotine's
addictive properties. The tobacco industry has used
ammonium compounds, for example, to raise the
alkalinity of smoke, which increases the addictive
“kick” of the nicotine.144 Cigarettes can also be produced
using more porous cigarette wrapping paper, which
results in lower “tar and nicotine” yields without
changing the composition. The existing measurements
of tar and nicotine levels are based on discredited
testing methodology that fails to capture the behavioral
and physiological responses to chemical additives and
cigarette content.145 In short, promoting higher
consumption and sales of an addictive product is
unlikely to create healthy communities.
Promoting health. Tobacco taxation is the most
cost-effective public health tool for reducing tobaccoattributable morbidity, disabilities, and mortality. This
disease burden will increase substantially over the
upcoming decades at present consumption levels.
However, the existing government regulation on
tobacco control (PP 19/2003) does not include articles
about price and tax measures. A Tobacco Control Act
(Controlling the Impact of Tobacco Products on Health)
is being put forward as parliamentary initiative. The
draft bill proposes tobacco tax rates at 65 percent of the
HJE and a 10 percent earmark of tobacco taxes for
tobacco control and health activities (Annex 6.4). To
date, the bill is waiting to be included in the national
legislative agenda. The government acknowledges the
role of excise in reducing consumption and controlling
the distribution of products considered immoral or
unhealthy.146 In addition, the Ministry of Finance stated
that the modest increase in the maximum allowable
tobacco tax rates in the customs law (from 55 to 57
percent) was done for health considerations.147 In
practice, however, tobacco tax rates and prices remain
low, consumption has steadily increased over time, and
smoking prevalence among children is increasing.
Framework
Convention
on
Tobacco
Control. The Framework Convention on Tobacco
Control (FCTC) is an international public health treaty
developed by all of World Health Organization (WHO)
member states. Its objective is “to protect present and
future generations from the devastating health, social,
environmental and economic consequences of tobacco
consumption and exposure to tobacco smoke by
providing a framework for tobacco control measures to
be implemented by the Parties at the national, regional
and international levels in order to reduce continually
and substantially the prevalence of tobacco use and
exposure to tobacco smoke.”148
52
As a member state of the WHO, the Government of
Indonesia (represented by the Ministry of Health,
Ministry of Foreign Affairs, Ministry of Trade and
Industry, Ministry of Finance, and National Agency for
Drug and Food Control) participated in all treaty
negotiating bodies as well as the treaty’s drafting
committee between 1999 and 2003. The FCTC text was
adopted unanimously by all members of the WHO at
the 56th World Health Assembly in May 2003. The
treaty sets forth minimum standards for tobacco
control policies, including a consideration of health in
implementing tobacco price and taxes and restricting
duty-free sales. As of October 2007, 152 countries have
become parties to the treaty through ratification or
accession (including major producers such as China,
India, and Brazil), and 168 countries have signed the
treaty.149 Indonesia is the only country out of 38 in the
Southeast Asia and Western Pacific regions that is not
a party to the treaty. Not being a party to the treaty
places Indonesia in a weak position, specifically related
to regional cross-border policies such as trade and
smuggling that affect domestic policies and revenues
and favorable trading status within ASEAN.
Reducing poverty. Through its negative health
effects, tobacco consumption would be expected to
reduce labor productivity, decrease the relative size of
the labor force, and have an important long-term
economic impact at the household level through
reductions in earnings and savings. The Indonesian
Millennium Development Goal (MDG) reports
produced in 2004 and 2005 and signed by the
respective Presidents of the Republic of Indonesia
discuss the poverty effects of tobacco use.150 They
emphasize the high levels of spending for tobacco
products among poor households — resources that
could have been spent on health, education, food, or
other necessities. Both reports recommend tobacco
taxes to increase prices as a means of reducing the
negative health and welfare effects of tobacco
consumption. However, the poverty effects of tobacco
consumption do not appear to be a consideration in
determining the tobacco tax rates.
Protecting children. Higher tobacco prices would
be expected to have the strongest impact on uptake
and consumption among children and adolescents,
who may be up to three times more sensitive to price
increases. The National Commission on Child
Protection (NCCP) has identified the promotion of
tobacco products as a violation of the Child Protection
Law, which obligates the government to protect
children from addictive substances. For example, 78
percent of Indonesian smokers started smoking before
the age of 19 years, nicotine is highly addictive, and 83
to 93 percent of children who smoke try to quit before
reaching adolescence. Youth access policies such as age
restrictions for buying cigarettes have been
demonstrated as ineffective in preventing youth
smoking.151 This suggests that taxation plays an
important role in keeping prices high to prevent uptake
among children and adolescents, who did not intend to
start a lifetime addiction. Protection of children,
however, does not appear to be a consideration in
determining the tobacco tax rates.
The National Commission on Child
Protection has identified the promotion of
tobacco products as a violation of the
Child Protection Law, which obligates the
government to protect children from
addictive substances.
Using taxation to offset the externalities
of tobacco consumption and address timeinconsistent behavior. Tax on tobacco should be set
at a level to exceed the externalities imposed by tobacco
consumption. This implies that the price of tobacco
could include the costs not only for individual smokers
but also the costs imposed on others and society. At the
societal level, the costs of smoking include reductions in
labor productivity, and use of publicly financed health
care for smoking-attributable diseases and disability for
smokers as well as nonsmokers routinely exposed to
secondhand smoke.152 There is a loss to the economy
from premature death and from a reduction in human
capital investments, such as education among surviving
children. A Ministry of Finance policy paper identifies
the role of tobacco taxation in reducing negative
externalities, and the excise law identifies the role of the
government in using excises to reduce health or
environmental risks, or to promote justice and equity.153
In estimating the true cost of smoking, an
important consideration is that individuals are timeinconsistent. People place a higher value on the
present compared with the future, but weigh the two
periods relatively equally. This implies that people will
consistently make decisions that offer immediate or
short-term benefits (such as smoking) over long-term
benefits that are much greater (such as additional
years of life). At the same time, people seek means of
self-control to address this internal conflict between
short-term and long-term goals; take, for example, the
high percentage of smokers that have attempted to quit
but were unsuccessful. Some smokers welcome higher
cigarette prices and clean air legislation because it
helps them quit or reduce consumption and, thereby,
achieve their long-term goals. Taking into
consideration time-inconsistent behavior and the
monetary value of the health damage for the average
smoker in the U.S., it is estimated that cost of one pack
of cigarettes in terms of life years lost is US$ 35
(Rp 319,824).154
Industry Responses to the Tobacco Tax System
There are several responses by the industry to the
differential scales for tax rates. First, differential tax
rates by production scales provide an incentive for
firms to reduce their production levels to fall within
lower tax brackets. We do not have access to recent
production figures by industry to illustrate this point.
However, Bird (1999) uses Djarum production data for
1988 to 1992 to show the industry’s response to the
Differential tax rates by production
scales provide an incentive for firms to
reduce their production levels to fall
within lower tax brackets.
government’s change in tax by production levels (Table
6.3). The change in the highest production threshold to
30 billion sticks prompted Djarum to reduce
production to below 30 billion sticks, thereby incurring
a lower excise tax rate on its products and increasing
its profit margin.138 In effect, this suggests that the
Table 6.3: Changes in Djarum’s Cigarette Production Volume in
Response to the Changes in Tax Rates by Production Level, 1988
to 1992
Year
Production (billion sticks)
Excise tax rate (%)
SKT
SKM
1988
35.1
25.0
35.0
1989
39.6
17.5
37.5
1990
37.1
17.5
37.5
1991
29.3
15.0
35.0
1992
28.9
15.0
35.0
Source: Bird K. 1999. SKT = hand-rolled kreteks. SKM = machine-made kreteks.
54
Six large firms contribute 88 percent
of tobacco excise revenues and
75 percent of total production.
tiered tax system can be “gamed” to increase profits
while, at the same time, reducing production volume.
More recently, there was a shift between the
number of firms in the small (IIIA) and very small
(IIIB) production scales between 2005 and 2006,
when the most favorable tax rates were in place for the
firms in the lowest production scales (Table 6.4).
During this time, there was a decline from 252 to 96
firms in the IIIA tier, and an increase from 2941 to
3841 firms in the IIIB tier, even though there were no
changes in the definitions applied to the production
scales. The tax policy, therefore, is providing firms an
incentive to become smaller, rather than grow larger
and improve efficiency. Recognizing this problem, the
Excise Tax Directorate combined the IIIA and IIIB
production scales for SKT and applied the same tax
rate (0 percent) and specific tax (Rp 30) for all firms
producing ≤500 million sticks for the 2008 regulation.
Second, the very low tax rates for firms with the
lowest levels of production (≤6 million sticks per
annum) may have provided an incentive to establish
new small firms. Different sources provide different
figures about the number of firms involved in cigarette
manufacturing. Euromonitor reports a doubling of the
total number of cigarette firms from 1,500 to more
than 3,000 between 2001 and 2004. They claim that
many of these firms produce at a very small scale and
avoid paying excise duties to keep prices low.155 In
2006, the Excise Tax Directorate counted 3834 very
small cigarette firms (Table 6.4). A separate factor
contributing to an increase in the number of small
firms is the decentralization policies in 2001, which
permitted districts governments to issue licenses to
new firms for cigarette production.155
Marks (2003) as well as industry reports question
how many of these small companies are genuinely
independent or exist in title only. According to these
two sources, small-and medium-size companies can
purchase excise tax ribbons and resell them to large
companies. This allows large companies to avoid
paying the highest tax rates.156 This practice is not legal.
Large cigarette firms buy up
or contract production to small firms,
which incur lower tax rates.
Table 6.4: The Number of Cigarette Firms by Production Tier, and
Their Contribution to Excise Revenues, 2005-2006
2005
Annual Production (sticks)
I
>2 billion
No.
firms
2006
% of total
tobacco
excise
No.
firms
% of total
tobacco
excise
6
86.1
6
88.3
II
>500 million -≤2 billion
18
8.0
25
6.7
IIIA
>6 million- ≤500 million
252
5.7
96
4.8
IIIB
≤6 million
2941
0.2
3834
0.2
Total
3217
100.0
3961
100.0
Source: Excise tax directorate, Ministry of Finance, in Roadmap of the Tobacco Products Industry, 2007.
A third way that large cigarette firms respond to
the tiered rates is to buy up or contract production to
small firms, which incur lower tax rates. Before 1999,
the government banned establishing or subcontracting
production to another firm. Subcontracting production
to small firms is now officially recognized and
permitted by the Ministry of Finance, presumably
because it is pro-employment.157 The smaller firms are
treated as separate legal entities, enabling them to incur
lower tax rates.
Data do not exist to estimate the extent to which
large firms subcontract production to small firms. We
can compare the figures from the Central Statistical
Bureau (BPS) about the number of firms in cigarette
manufacturing and the Excise Tax Directorate figures
about the size of firms (Annex 6.5). However, this
comparison is complicated by different definitions of
firm size by the industrial sector and the Excise Tax
Directorate. The Statistical Bureau estimates firm size
by number of employees, with the largest firms
employing 100 or more people. The Excise Tax
Directorate, however, defines firm size in terms of
cigarette production. Therefore, firms with the largest
numbers of employees would probably correspond
with the small-or medium-size production scales used
by the Excise Tax Directorate. One could assume the
greatest overlap would occur for small and very small
industries, with both few numbers of workers and
small-scale cigarette production. Overall, however, the
Statistical Bureau reports nearly 17,000 “home
industries” in tobacco manufacturing, although they
are not counted in the Excise Tax Directorate statistics.
This difference could be a result of firms that are
registered with the labor ministry and not yet
Despite the complicated tax structure, the
most important tax administration issues
from a revenue perspective revolve
around a handful of large firms.
registered with the finance ministry, or firms that are
registered but not active in cigarette production.
Table 6.4 also illustrates that a handful of large
firms account for vast majority of revenues. Six large
firms contributed 88.3 percent of excise tax revenues
and 75.1 percent of total production in 2006. This
suggests that, despite the complicated tax structure,
the most important tax administration issues from
a revenue perspective revolve around a handful of
large firms.
Tax Administration, Counterfeiting,
and Smuggling
There is a concern that an increase in tobacco tax
and prices would result in higher contraband cigarette
sales. From a revenue perspective, illicit trade in
cigarettes can result in the loss of government tax
revenues. From a social welfare perspective, smuggling
increases the availability of low-priced cigarettes, and
low prices encourage consumption.
There are several main types of illicit trade in
tobacco products: bootlegging, illegal manufacturing
of products, and organized transit smuggling.
Bootlegging occurs when a person buys cigarettes in a
low tax jurisdiction and resells them in a high tax
jurisdiction. The difference in tax rates is the profit.
Bootlegging tends to be relatively small-scale and does
not account for a large part of global illicit trade. Tax
harmonization between countries can reduce
bootlegging. Tax rates in Indonesia are much lower
than most of its neighboring countries, so it is unlikely
that even large tax increases would provide an
incentive for bootlegging into Indonesia.
Illegal manufacturing refers to the production of
cigarettes contrary to taxation laws, or laws related to
licensing or restrictions on the manufacture of tobacco
products. The Excise Tax Directorate has recognized
the existence of illegal manufacturing of cigarettes and
has taken steps to remediate this problem. They are
56
focusing on tobacco products sold without excise
ribbons, counterfeit tax ribbons, recycled tax ribbons,
and tax ribbons that do not correspond with the
cigarette type and production scale classification.
The excise ribbon is provided by the Ministry of
Finance, and the printing is conducted by state-owned
companies and/or institutions licensed by the Ministry
of Finance. The ribbons are designed using printing
security technology to protect from counterfeiting.
Producers should pay excise tax within 45 days of
product distribution. However, for firms that pay by
purchase of excise ribbons, the payment can be made
within 90 days of ordering the ribbons. Cigarette
importers who pay using excise ribbons have 60 days
from ordering the ribbons to pay excise duties. Delays
beyond the given deadlines are fined an administrative
penalty of around 10 percent of the total tax liability.158
Transit smuggling (also called freight smuggling or
container smuggling) is the main problem in the global
illicit cigarette trade.159 Transit smuggling avoids all
taxes by diverting products from the legal distribution
chain to the black market. Multinational “western”
brands are popular with organized smugglers because
they can be sold in many countries. Smugglers place
bulk orders from manufacturers; once the shipment
leaves the manufacturers, it passes through several
paper transactions, which may be difficult to trace and
lead to nonexistent companies. The cigarette shipment
then disappears into the black market. As a result of US
litigation and the release of internal industry
documents, there exists considerable evidence of
tobacco industry involvement in transit smuggling to
advance their business interests in Asia, Africa, and
Latin America.160 Smuggling enables tobacco companies
to overcome entry restrictions, enter into new markets,
and launch new brands. It also keeps prices low, which
encourages widespread access.161
Smuggling cigarettes into Indonesia appears to be
less of a problem compared with other countries in the
Price differentials across countries
provide an incentive to smuggle,
but other important factors
are unlicensed distributors and lax
anti-smuggling laws and enforcement.
region. Industry sources cite an increase in contraband
sales from 9.3 to 12.3 billion sticks between 2000 and
2005,155 amounting to 5 to 6 percent of sales. In
comparison, it is estimated that smuggling as a percent
of sales amounts to 10 percent in Vietnam, 11 percent in
Thailand, 21 percent in Malaysia, and 14 percent in
India.162 One explanation could be that most Indonesians
still prefer domestically produced kreteks, whereas
white (tobacco only) cigarettes dominate the
international illicit trade. Smuggling into Indonesia
might not be profitable because kretek prices are
cheaper than average cigarette prices in neighboring
countries. For example, the price of a pack of cigarettes
in Indonesia is around US$ 0.72 compared with US$
0.77 in Vietnam, US$ 0.92 in Thailand, US$ 1.21 in
Malaysia and India, and more than US$ 3.00 in
Singapore. The average price per pack in the East Asia
and Pacific region is US$ 2.28, and the average across
low-income countries is US$ 1.18.163
Smuggling white (tobacco only) cigarettes into
Indonesia has been identified as potentially profitable.
A BAT-commissioned study found a preference among
Indonesian consumers for contraband versions of
international brand cigarettes.164 The study reported
that contraband international brands are considered
more authentic than domestically produced
white cigarettes.
Price differentials across countries provide an
incentive to smuggle, but other factors are also
important. These include unlicensed distributors and
lax anti-smuggling laws and enforcement. Singapore,
for example, reports smuggling amounting to 2 percent
Cigarette smuggling thrives where it is not
considered a serious crime, and law
enforcement is weak.
of cigarette sales while also enforcing some of the
highest tobacco tax rates in the region.162 Under Article
15 of the Framework Convention for Tobacco Control
(FCTC), other governments in the Southeast Asia and
Pacific region will be required to address smuggling in
several specific ways. These include collecting data
about cross-border trade in tobacco products including
illicit trade, enacting or strengthening legislation
against illicit trade in tobacco, destroying counterfeit
and contraband tobacco, adopting and implementing
measures to monitor and control the distribution of
tobacco products, and adopting measures to enable the
confiscation of proceeds derived from smuggling.
Unlicensed manufacturers and distributors
facilitate smuggling. Indonesia requires that all
manufacturers, warehouse owners, importers,
distributors, or retailers who deal with goods subject to
excise have a permit in the form of Identification
Number (NPPBKC) from the Ministry of Finance.
Before the permit is given, the Excise Tax Directorate
will conduct a “fit and proper” test by establishing
the profile of a manufacturer in implementing
excise-related regulations. The Director General
of Excise maintains a database with company
identification numbers and activity data. Owners of
NPPBKC (including producers, warehouse owners,
distributors, importers, or retailers) are obligated to
maintain bookkeeping or at least a record on products
subject to excise after the production process. This
bookkeeping should be reported regularly to the tax
directorate through their representative offices
(KPPBC), which monitor the companies. Monthly
reports are required from firms that sell tobacco.
Cigarette smuggling thrives where it is not
considered a serious crime and law enforcement is
weak. In general, low penalties for smuggling
cigarettes compared with other products such as
pharmaceuticals or other drugs makes tobacco
smuggling attractive. Large profits can be gained at a
low risk of getting caught and convicted, and even so
with lax penalties. Regulations are required that make
cigarette smuggling less profitable by making it a
serious crime with high penalties and strict law
enforcement. In Indonesia, sanctions for producers of
fake excise ribbons include imprisonment for one to
eight years, and a fine of ten to twenty times the value
of the excise value that should be paid. Penalties for
retailers who sell tobacco products having no excise
ribbon include imprisonment for one to five years
and/or a fine amounting twice to ten times the excise
value that should have been paid. The technology
exists for creating excise ribbons or other pack
markings that would allow cigarettes to be tracked
through the distribution process and, when combined
with licensing, make it easier to identify and penalize
those responsible for the smuggling.
131
132
133
134
135
136
137
Ministry of Industry, Republic of Indonesia. Roadmap for the Tobacco Products Industry and Excise Policy, 2007-2020; March 2007.
Law of the Republic of Indonesia Number 11, 1995, about Excise.
Law of the Republic of Indonesia, Number 39, 2007, about the amendment to Law Number 11, 1995, about Excise.
Budget statistics, APBN 2007-2008, Ministry of Finance 2007.
Castles L. Religion, politics, and economic behavior in Java: The Kudus cigarette industry. Cultural Report Series No. 15, Southeast Asia
Studies, Yale University, 1967.
Tarmidi L. Changing structure and competition in the kretek cigarette industry. Bulletin of Indonesian Economic Studies 1996;32(3):85-107.
World Bank. April 2007.
58
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
161
162
163
164
Bird K. Industrial concentration and competition in Indonesian manufacturing. Doctoral Thesis. Australian National University, 1999. Bird
explains that this policy, while strictly applied to large multinationals, was less strict for smaller foreign firms that were given permission
to produce white cigarettes in the 1980s.
Data from Roadmap of the Tobacco Products Industry (IHT); Directorate General for Agro-chemical Industries, Ministry of Labor,
Opportunities for Tobacco Products, Meeting on March 8 2007.
Communication from the Directorate of Excise Tax, 21 January 2008.
Guerin B. Smoking US-Indonesia trade debate. Asia Times Sept 12, 2007.
Zeller M. Exposure and harm reduction. Paper presented at the International Conference: Advancing Knowledge on Regulating
Tobacco Products, Oslo, Norway, 9-11 Feb. 2000. In WHO 2000. Advancing knowledge on regulating tobacco products.
Facts about light and mild cigarettes. The Johns Hopkins Bloomberg School of Public Health.
Summary of literature at ASH UK.
Advancing knowledge on regulating tobacco products. Geneva, World Health Organization, 2000.
Policies to expand on and intensify tobacco product excise, Ministry of Finance.
Government raises cigarette taxes, Ministry of Trade Press Release, July 2007.
The Framework Convention on Tobacco Control Text, Part II: Objective, guiding principles and general obligations. Article 3 Objective.
Updated status of the WHO Framework Convention on Tobacco Control, World Health Organization website.
Indonesia Progress Report on the Millennium Development Goals, 2004 and 2005. Ministry of Planning, Republic of Indonesia and the
United Nations Development Program (UNDP).
Ling PM, Landman A, Glantz SA. It is time to abandon youth access tobacco programmes. Tobacco Control 2002;11: 3-6.
Warner KE, Chaloupka FJ, Cook PJ, Manning WG, Newhouse JP, Novotny TE, et al. Criteria for determining an optimal cigarette tax:
The economist's perspective. Tobacco Control 1995;4;380-386. doi:10.1136/tc.4.4.380.
Ministry of Finance. Policies to expand on and intensify tobacco product excise, Ministry of Finance; and Law of the Republic of
Indonesia, Number 39, 2007, about Amendments to Law Number 11, 1995, about Excise.
Gruber J, Koszegi B. A modern economic view of tobacco taxation. The International Union Against Tuberculosis and Lung Disease,
Paris, February 2008.
Cigarettes in Indonesia. Euromonitor, 2007.
Marks, 2003 and Euromonitor, 2007.
MoF SK 125/1999.
Details on excise administration are stipulated in Law no 39/2007 article 7, and Ministry of Finance decrees: No. 240/KMK.05/1996, KMK
No.105/KMK.05/1997, and PMK No.60/PMK.04/2007.
Tackling the illicit trade in tobacco, ASEAN inter-sessional meeting, 4-7 March 2002.
Lee K, Collin J. Key to the future. British American Tobacco and cigarette smuggling in China. PLoS Med 2006; 3(7); Towards health
with justice, WHO 2002; Collin J, LeGresley E, MacKenzie R, Lawrence S, Lee K. Complicity in contraband: British American Tobacco
and cigarette smuggling in Asia. Tobacco Control 2004;13:ii104-ii111; BAT and smuggling; ASH UK; and Tobacco industry involvement
in cigarette smuggling ASH Canada.
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of the Conference of the Parties to the WHO FCTC, June 30-July 6, 2007, Bangkok, Thailand.
Merriman D, Yureliki A, Chaloupka FJ. 2002, How big is the worldwide cigarette smuggling problem? In: Tobacco control in
developing countries, Oxford University Press; and How big was the global illicit tobacco trade problem in 2006? June 30-July 6, 2007,
Bangkok, Thailand.
Figures provided by Ayda Yurekli, Economic Advisor to WHO.
Collin J, LeGresley E, MacKenzie R, Lawrence S, Lee K. Complicity in contraband: British American Tobacco and cigarette smuggling
in Asia. Tobacco Control 2004;13:ii104-ii111.
Conclusions and
Recommendations
The social and economic consequences of tobacco
consumption in Indonesia have received little
attention to date, primarily because there is a delay of
up to 25 years between the time of smoking uptake and
the onset of many chronic diseases. Therefore, the
negative health effects of rapid increases in cigarette
consumption since the 1970s and 1980s are only now
being seen. Up to one-half of today’s 57 million
smokers in Indonesia will die of tobacco-related
illnesses. This study has highlighted the potential for
tobacco price and tax measures to reduce the burden of
disease and poverty, address market failure related to
addiction, protect children, and recover the costs of
tobacco consumption to society. We conclude with five
recommendations.
1. Simplify the excise tax system by eliminating
the tiered production scales, using a uniform
specific tax, implementing tax increases across
all tobacco products, and automatically adjusting
the tax for inflation.
The tobacco excise tax system could be simplified
by eliminating the production scales, using a uniform
tax, and applying comparable increases for all
products. At present, the production scales offer firms
a number of different ways to avoid the highest tax
brackets, legally or otherwise, which reduce the impact
of tobacco tax increases on revenue generation and
social welfare. A larger uniform specific tax would
greatly simplify administration, protect revenues from
industry pricing competition, and facilitate revenue
forecasts. In addition, imposing the same specific tax
would be effective in discouraging cigarette
consumption assuming that it is large enough to offset
income growth and automatically adjusted for inflation
annually. Comparable increases in taxes on all tobacco
products are needed to minimize substitution between
tobacco products.
2. Implement the maximum legally allowable
excise tax rates for all tobacco products.
The current tax rates are well below the maximum
allowable by law. Under the current excise tax system,
it is estimated that applying the maximum tax rate
could avert between 1.7 and 4.0 million tobaccorelated deaths among the current cohort of smokers.
The actual impact of applying the maximum tax rate
could have a greater health impact because it would
require increases in taxes for all products, thereby
reducing substitution. The application of a uniform
specific tax that minimized the differences in tax rates
between cigarette products could result in additional
lives saved. Specific excises that impose the same tax
per cigarette are more effective in discouraging
cigarette consumption. Increasing the tax rates to this
level would also generate substantial additional
government revenues, amounting to Rp 29.1 to 59.3
trillion (US$ 3.2 to 6.5 billion). Reaching the global
benchmark of 70 percent of sales price through a
specific, or primarily specific, rather than ad valorem
tax, would have the greatest health impact.
Research simulating a doubling of the tobacco tax
reports that six economic sectors would be negatively
impacted. Growth in 60 other sectors would be
stimulated. This would result from diverting large
household expenditures from tobacco to spending on
other commodities and investments with higher
economic output. The result would be a net positive
impact on economic output amounting to Rp 335.4
billion (US$ 36.9 million) (0.008 percent), an increase
in household income by RP 491.6 billion (US$ 54.1
million) (0.08 percent), and an increase in employment
by 281,135 jobs (0.3 percent).
60
3. Re-examine the employment generation goal of
the tobacco excise tax system, and evaluate
whether other policy instruments and programs
would be more effective in promoting employment
compared with tobacco excise policies.
Part of the complexity of the current tobacco tax
system could be explained by its intention to promote
employment. The current system applies lower taxes
for firms producing hand-rolled products and those
operating at low production levels. The policy has
primarily been to protect small firms by increasing tax
on products from larger firms. However, despite a
series of major tax changes favoring small firms that
produce hand-rolled kreteks, the percentage of
production from small firms declined between 2000
and 2005. The relatively low growth in tobacco
manufacturing has not matched rapid growth in the
manufacturing sector as a whole. The employment
generation goal of the current tobacco tax system
should be reexamined. A tobacco excise tax system that
protects small firms from competition is unlikely to be
the most effective means to promote employment —
compared with, for example, small-scale credit or
investments in education and human development.
4. When setting increases in the tobacco tax rates,
take into consideration the social welfare losses of
tobacco consumption, including market failures
related to lack of information and addiction, time
inconsistent behavior that reflects short-term
rather than long-term goals, the externalities of
tobacco consumption, and the contribution of
tobacco consumption to poverty.
The excise tax law states that the purpose of excise
is to reduce the consumption and control the
distribution of tobacco products, and identifies the role
of the government in using excises to reduce health or
environmental risks, or to promote justice and equity.
In practice, tobacco taxation has not yet been used as a
tool to reduce consumption and improve health and
welfare. Tobacco taxes are low by almost any standard,
and real prices have remained largely unchanged since
the 1980s. The system promotes large gaps in prices
between products, and tobacco has become more
affordable over time. Tobacco consumption has
steadily increased over time, and prevalence among
children is increasing.
Tax on tobacco should be set at a level to exceed
the externalities imposed by tobacco consumption.
This includes public spending on health care for
tobacco-attributable illnesses, the loss to the economy
from reductions in labor productivity at work,
premature death due to tobacco-related illnesses, and
reductions in future human capital investments such
health and education among children. Most
Indonesians start smoking before the age of 19 years,
nicotine is highly addictive, and the long-term risks of
smoking are not fully understood. At the same time,
individuals tend to make decisions that offer shortterm benefits over higher long-term benefits, and most
smokers have tried unsuccessfully to quit. Through
taxation, the government can help consumers in
making informed consumption choices by providing
them a more accurate estimate of the true costs. More
difficult to value is the cost to the society and families
of premature tobacco-related deaths.
5. Consider using earmarked excises to support
local economies that could be negatively affected by
reductions in tobacco consumption, and to
implement tobacco control programs.
While the contribution of tobacco manufacturing
is relatively small from a national or provincial
perspective, a handful of districts are highly dependent
on tobacco manufacturing. The excise law recognizes
this concentration, and earmarks 2 percent of excise
revenues for tobacco producing regions. Recall that 6
large firms contributed 88.3 percent of excise tax
revenues and 75.1 percent of total production; although
there are more than 3000 small producers paying
excise, many of these small producers copy the more
popular brands. It could be expected, therefore, that
these small firms would not survive under a stricter
regulatory environment. It is estimated that the 2
percent earmark will amount to approximately Rp 836
billion (US$ 92 million) for tobacco-producing regions
in 2008; with the tax increase in recommendation 2,
the earmark could increase to Rp 1.4 to 2.0 trillion
(US$ 155.9 to 222.5 million). These resources could be
directed to support any labor transitions from tobacco
to other sectors of the economy, including crop options,
specialized agricultural support or private trading
networks that would allow entry into new markets,
skills training, or other economic or human
development programs. The social development
programs specified in the law could include health and
tobacco control programs more broadly.
62
Annexes
Annex 2.1: Smoking Prevalence by Age Group and Sex. 1995, 2001, 2004
Age Group
1995
Males
Females
2001
Average
Males
Females
2004
Average
Males
Females
Average
10-14
0.5
0.1
0.3
0.7
0.0
0.4
NA
NA
NA
15-19
13.7
0.3
7.1
24.2
0.2
12.7
32.8
1.9
17.3
20-24
42.6
1.0
20.3
60.1
0.6
28.8
63.6
4.1
30.6
25-29
57.3
1.1
27.4
69.9
0.6
33.7
69.9
4.5
34.7
30-34
64.4
1.2
31.5
70.5
0.9
35.3
68.9
3.8
37.3
35-39
67.3
1.7
35.6
73.5
1.3
36.6
67.7
5.0
39.7
40-44
67.3
2.3
34.2
74.3
1.9
39.6
66.9
4.9
40.1
45-49
68.0
3.1
35.7
74.4
2.2
41.3
67.9
5.8
41.0
50-54
66.8
3.4
34.5
70.4
2.6
34.8
67.9
4.9
38.8
55-59
66.1
3.3
33.9
69.9
3.0
36.3
64.1
6.2
36.8
60-64
64.7
2.8
32.2
65.6
2.8
32.6
60.0
6.2
31.3
65-69
64.3
3.8
34.0
64.7
2.7
32.2
58.7
4.4
30.9
70-74
56.9
3.1
30.6
59.2
2.1
30.0
55.3
3.8
27.0
75+
53.3
1.9
24.8
48.5
2.1
23.5
47.4
4.1
24.9
Average
53.4
1.7
27.0
62.2
1.3
31.5
63.1
4.5
34.4
Sources: National Socio-Economic Survey 1995, 2001, 2004. Aceh and Maluku not included in 2001. Respondents in 2004 were 15 years and older.
Annex 2.2: Male and Female Smoking Prevalence, by Province and Region, 1995, 2001, 2004
Province
1995
2001
Males Females Average
Males
Females
Average
Males
Females
Average
-
69.1
5.6
35.1
Nangro Aceh Darussalam
52.8
2.2
26.9
-
North Sumatra
59.8
2.5
28.7
59.7
1.7
30.3
60.4
5.2
34.2
West Sumatra
54.2
1.5
27.6
67.1
2.5
33.3
67.6
4.6
34.2
Riauw
58.6
3.7
31.0
63.3
2.1
33.4
69.5
8.0
37.8
Jambi
57.2
1.7
29.2
57.4
1.5
30.1
65.2
6.9
37.8
South Sumatra
61.3
1.7
31.6
64.8
1.7
33.7
68.5
5.3
39.8
Bengkulu
61.1
2.4
32.3
66.7
0.6
34.8
75.0
2.6
38.7
Lampung
42.6
1.8
22.1
67.4
1.6
35.9
71.0
5.1
39.6
-
58.5
1.3
30.3
60.8
1.3
31.8
Bangka Belitung
-
-
-
2004
DKI-JAKARTA
58.3
1.8
29.8
54.5
1.5
27.7
55.7
5.1
31.2
West Java
52.4
1.3
26.1
68.0
1.7
35.0
70.0
5.7
39.1
Central Java
47.2
0.5
23.5
61.5
1.0
30.8
58.7
2.9
32.6
DI Yogya
55.7
1.3
27.2
53.7
0.2
26.3
55.7
0.9
28.8
East Java
33.1
0.9
16.9
62.4
0.8
30.7
64.1
3.1
32.5
-
66.3
0.8
33.6
68.1
5.9
38.2
Banten
-
-
Bali
61.8
0.5
29.2
45.7
1.3
23.3
46.2
2.2
24.3
West Nusa Tenggara
38.2
1.0
18.8
62.6
0.4
29.9
69.9
2.0
32.6
East Nusa Tenggara
39.8
0.9
20.1
56.6
0.5
27.6
52.4
3.8
27.3
East Timor
53.9
6.0
30.2
--
--
--
West Kalimantan
54.7
2.4
28.7
58.6
2.9
31.4
61.3
6.7
36.1
Central Kalimantan
46.3
2.3
23.6
60.2
1.0
31.8
65.8
5.1
36.6
South Kalimantan
42.1
1.9
22.5
51.8
1.2
26.6
53.0
3.8
27.3
East Kalimantan
50.6
0.9
25.6
55.3
2.6
29.2
45.4
8.9
29.5
North Sulawesi
49.3
3.3
26.2
61.2
1.9
31.7
66.3
7.0
37.1
Central Sulawesi
48.7
2.2
23.7
64.6
3.0
34.3
62.8
4.3
33.8
South Sulawesi
51.1
2.4
26.1
58.5
1.2
27.9
52.8
5.0
29.0
South East Sulawesi
40.9
1.0
21.1
58.7
1.7
29.9
60.0
5.4
31.5
--
69.0
0.9
35.2
73.7
5.8
38.4
23.1
NA
NA
NA
61.9
4.0
32.3
--
NA
NA
NA
76.6
4.3
42.0
Gorontalo
Maluku
North Maluku
-41.7
--
-4.3
--
--
--
--
Papua/Irian Jaya
55.0
0.6
27.3
54.6
3.7
29.7
57.1
9.9
36.4
Rural
58.3
2.0
29.5
67.0
1.5
34.0
66.8
4.7
36.5
Urban
45.1
1.2
22.6
56.1
1.1
28.2
58.6
4.2
31.7
64
Annex 2.3: Smoking Prevalence by Education and Expenditure Levels, by Sex, 1995, 2001 and 2004
1995
2001
Males Females Average
Educational levels
Males
Females
2004
Average
Males
Females
Average
No education/incomplete
primary education
67.3
4.8
31.2
67.3
2.8
29.3
73.0
2.4
31.1
Primary school graduate
52.8
1.0
27.3
65.1
0.9
33.3
67.0
5.0
36.6
Junior high graduate
38.6
0.8
21.3
51.8
0.6
27.8
58.9
3.7
33.8
Senior high graduate
44.7
0.8
26.1
57.7
0.8
33.5
60.7
3.8
36.4
University graduate
37.1
0.6
23.0
44.2
0.3
25.2
47.8
3.5
29.7
1 (poorest)
57.8
2.2
27.5
62.9
1.7
30.0
63.0
4.4
33.9
2
56.5
1.8
28.7
65.4
1.2
33.0
64.8
4.0
35.5
3
55.0
1.7
28.3
64.0
1.3
32.9
64.4
4.5
35.2
4
51.6
1.4
26.5
61.2
1.3
31.8
63.4
4.8
34.5
5 (wealthiest)
46.2
1.4
23.7
57.4
1.1
29.6
60.1
4.5
32.8
Average
53.4
1.7
27.0
62.2
1.3
31.5
63.1
4.5
34.4
Expenditure Quintiles
Annex 2.4: Percent of Smokers that Prefer Kreteks by
Age Group
Age group
Prefer kretek
Prefer white
(tobacco only)
cigarettes
15-19
79.5
20.5
20-29
83.9
16.1
30-39
90.5
9.5
40-49
93.3
6.7
50-59
93.1
6.9
60+
91.0
9.0
Average
88.1
11.9
Source: IFLS 2000.
Annex 2.5: Percent of Monthly Household Expenditure by
Type of Expenditure and Type of Household (Smoker and
Non-Smoker), 2005
Annex 2.6: Tobacco Expenditures as a Percent of Total
Household Expenditures, 1995-2005
Type of expenditure
Smokers
Non-smokers
Total
Year
1
2
3
4
5
Average
1995
4.8
6.0
6.0
5.7
4.3
5.3
2002
6.7
9.0
9.3
8.6
6.0
7.9
2005
5.2
8.0
8.9
8.4
6.3
7.3
Households
with smokers 1995
8.3
8.5
8.2
FOOD
Cereals
All
households
13.4
13.5
13.4
Tubers
0.8
1.0
0.9
Fish
5.7
5.7
5.7
Meat
2.0
2.2
2.1
Egg and milk
3.3
3.7
3.4
7.8
6.3
7.8
Vegetables
4.5
5.1
4.7
2002 11.2 12.3 12.4 11.7
8.9
11.3
Legumes
2.4
2.8
2.5
2005 11.9 12.3 12.4 11.7
9.2
11.5
Fruits
1.9
2.2
2.0
Oil and fat
2.7
3.0
2.8
Beverages
3.3
3.4
3.4
Spices
1.8
2.0
1.9
Miscellaneous food
2.1
2.2
2.1
Prepared food
8.1
9.4
8.6
Alcohol beverages
0.1
0.1
0.1
Tobacco
11.5
0.0
7.3
Betel nut
0.3
1.1
0.4
63.9
57.3
61.5
10.4
13.2
11.4
Housing maintenance
and reparation
0.6
0.6
0.6
Electricity bills
9.2
11.3
10.0
Goods and services
4.7
4.8
4.7
Health
2.3
2.9
2.5
Education
3.2
4.0
3.5
Clothing
2.5
2.4
2.5
Durable goods
1.6
1.6
1.6
Tax and insurance
0.8
1.0
0.8
Parties and ceremonies
1.0
1.0
1.0
36.1
42.7
38.5
Total Food Expenditure
NON-FOOD
Rental cost
Total Non Food
Expenditures
Sources: National Socio-Economic Survey. Demographic Institute, University of
Indonesia 2005
Source: SUSENAS.
66
Annex 2.8: Age of Smoking Initiation Among Current
Smokers, Percent by Age Group
Annex 2.7: Average Age of Smoking Initiation
Among Current Smokers (In Years)
Age group
1995
2001
2004
Age group
1995
2001
2004
15-19
15.2
15.4
15.0
5-9
0.6
0.4
1.7
20-24
17.2
17.1
16.5
10-14
9.0
9.5
12.6
25-29
18.0
17.8
16.9
15-19
54.6
58.9
63.7
30-34
18.5
18.2
17.2
20-24
25.8
23.9
17.2
35-39
18.8
18.5
17.6
25-29
6.3
4.8
3.1
40-44
19.3
18.7
17.6
30+
3.8
2.6
1.8
45-49
19.6
19.0
17.6
Total
100.0
100.0
100.0
50+
23.7
22.5
18.0
Average age
of initiation
(years)
18.8
18.3
17.4
Sources: National Socio-Economic Survey 1995, 2001, 2004. Aceh and
Maluku not included in 2001. Respondents in 2004 were 15 years and older.
Source: SUSENAS.
Annex 2.9: Smoking Prevalence in Men 1995, 1997, 2000
Age group
Year
% ever
smoked
% currently
smoke
% currently
smoke kreteks
Difference between ever
smoked and currently smoke
15+
1995
1997
2000
77.2
68.9
70.4
68.5
63.5
64.8
56.6
51.4
55.4
8.7
5.4
5.6
15-19
1995
1997
2000
32.2
36.7
43.1
30.8
35.3
41.8
24.3
27.4
31.6
1.4
1.4
1.3
20-29
1995
1997
2000
72.4
68.4
72.4
67.4
66.5
69.8
56.3
53.0
57.2
5.0
1.9
2.6
30-39
1995
1997
2000
77.0
76.7
74.9
70.2
73.1
70.6
59.3
62.4
61.9
6.8
3.6
4.3
40-49
1995
1997
2000
76.4
74.7
76.4
69.4
69.3
70.4
57.9
57.6
63.8
7.0
5.4
6.0
50-59
1995
1997
2000
83.3
80.8
78.3
72.7
72.0
68.3
58.7
57.7
61.3
10.6
8.8
10.0
60+
1995
1997
2000
84.8
82.3
80.8
68.5
65.8
63.6
55.1
49.6
55.7
16.3
16.5
17.2
Source: Indonesian Family Life Survey, in Witeolar et al 2006.
Annex 3.1:
Form for Calculation of HJEa for Domestic Tobaccco Products (CK-21A)
This calculation based on ________________cigarette sticks, which uses raw material of
__________kg mixed tobacco, __________kg clove, and/or ___________kg clove sticks.
Name of Factory: _________________________________________________________________________
Address of Factory: ________________________________________________________________________
Name of Owner: __________________________________________________________________________
NPPBKC: __________________________________________________________________________________
(Factory Identity Number)
NPWP (Tax Identity Number): _______________________________________________________________
Nomor PKP (PKP Number): _________________________________________________________________
Tobacco Product Brand: __________________________________________________________________
Volume per pack: ________________________ sticks / gram
Weight per stick: + ________________________ gram
Retail Price Per Pack:
Excise tariff :
Rp ____________________________
Rp ____________________________
Price of Ingredients and Related Costs:
Value
1. Mixed tobacco:
Rp ____________________________
2. Sliced clove:
Rp ____________________________
3. Sauce:
Rp ____________________________
4. Filter:
Rp ____________________________
5. Wrapping paper, tobacco leaves, cornhusk, printing cost:
Rp ____________________________
6. Cellophane:
Rp ____________________________
7. Packaging paper including printing cost:
Rp ____________________________
8. Alumunium foil:
Rp ____________________________
9. External seal:
Rp ____________________________
10. Box and external packaging:
Rp ____________________________
11. Glue:
Rp ____________________________
12. Cost of rolling, cutting and tying:
Rp ____________________________
13. Cost for packaging, pressing and cartoning:
Rp ____________________________
14. Cost for transportation and selling:
Rp ____________________________
15. Overhead cost:
Rp ____________________________
16. Other cost:
Rp ____________________________ +
17. Base price:
Rp ____________________________
18. Excise ________% x ______HJE:
Rp ____________________________
19. Value Added Tax of Tobacco Product _______% x _____HJE:
Rp ____________________________
20. Producer Profit:
Rp ____________________________ +
21. Factory Transaction Price:
Rp ____________________________
22. Profit for distributors, agents and retailers:
Rp ____________________________ +
23. Retail Price (HJE):
Rp ____________________________
a HJE is the “retail sales price,” and represents the factory price inclusive of taxes, profit, and transaction costs.
Source: Director General of Customs and Excise, Regulation No. 07/BC/2005, Ministry of Finance, Indonesia.
April 2000
Nov 2000
453/KMK.05/2000
July 2001
383/KMK.04/2001
Nov 2002
Jan 2003
449/KMK.04/2002
537/KMK.04/2002
26-40
26-40
26-40
26-40
26-40
26-40
26-40
26-40
26-40
28-40
20-36
20-36
20-36
20-36
20-38
440-550
410-510
370-460
320-400
320-400
270
190-325
170-305
150-280
120-250
110-225
140-225
40-85
30-80
30-75
3-7
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
4-22
4-22
4-22
4-22
4-22
4-20
4-20
4-20
10-20
12-20
4-16
2-16
2-16
2-16
1-18
275-475
255-440
230-400
200-340
200-340
175-225
150-255
125-230
100-200
65-165
55-150
80-150
25-65
20-60
10-65
HJE
(Rp)
3-7
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Per
stick
Tax
(%)
Per
stick
Tax
(%)
HJE
(Rp)
Hand made kreteks
(SKT)
Machine made kreteks
(SKM)
26-40
26-40
26-40
26-40
26-40
26-40
26-40
26-40
26-40
28-40
20-36
20-38
20-38
20-38
22-38
Tax
(%)
255-345
235-320
210-295
180-250
200-270
150
103-208
90-195
120-180
70-150
110-225
30-125
30-80
25-75
25-85
HJE
(Rp)
3-7
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Per
stick
White cigarette (SPM)
Source: Ministry of Finance regulations listed on website for Excise Tax Directorate: http://www.beacukai.go.id/en/library_en/
118/PMK.04/2006
March 2007
April 2006
17 /PMK.04/2006
16/PMK.04/2006
July 2005
43/PMK.04/2005
100/BC/2002
Dec 2001
597/KMK.04/2001
384/KMK.04/2001
April 2001
144/KMK.05/2001
454/KMK.05/2000
April 1999
89/KMK.05/2000
April 1998
April 1997
May 1996
April 1996
Implementation
date
124/KMK.05/1999
16/BC/1998
118/KMK.05/1998
19/BC/ 1997
91/KMK.05/1997
19/BC/1996
229/KMK.05/1996
09/BC/1996
228/KMK.05/1996
Ministerial
decree
Annex 3.2: Change in Tobacco Excise Rates by Major Type of Product, 1996-2007
4-8
4-8
4-8
4-8
4-8
4-8
4-20
10-20
10-20
12-20
4-16
1-8
1-8
1-8
1-8
Tax
(%)
180-215
165-200
150-180
125-150
125-150
100-125
100-200
100-200
100-200
65-165
55-150
50-125
25-65
20-60
10-65
HJE
(Rp)
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
Per
stick
Other cigarettes
X
X
X
X
X
X
Change in
production
scales
68
I
II
III
I
II
IIIA
IIIB
I
II
III
I
II
I
II
IIIA
IIIB
NA
NA
Machine-made
white (tobacco
only) cigarettes
(SPM)
Hand-made
kreteks (SKT)
Filtered handmade kreteks
(SKTF)
Other cigarettes
(KLB, KLM, SPT)
TIS
(Sliced leaves)
Cigars (CRT)
Other (HPTL)
Production
> 2 billion grams
> 500 million - ≤ 2 billion grams
> 50 million - ≤ 500 million grams
≤ 50 million grams
>6 million
≤ 6 million
> 2 billion
>500 million - ≤2 billion
≤ 500 million
> 2 billion
>6 million - ≤ 500 million
≤ 6 million
> 2 billion
≤ 500 million
> 2 billion
≤ 500 million
(no. of sticks per year)
475
Hand-made kreteks (SKT)
7
5
3
3
7
5
3
7
5
3
275
Other tobacco products (HPTL)
20
20
20
8
22
NA
40
40
NA
NA
NA
NA
7
7
7
Specific per
stick tax (Rp)
NA
NA
NA
NA
NA
NA
NA
NA
275
275
50
180
600
520
375
600
30
26
11
32
31
18
35
35
35
35
35
35
ad valorem Specific per
tax (%)
stick tax (Rp)
NA
35
35
35
NA
NA
20
20
20
8
36
36
36
36
NA
NA
NA
NA
35
35
35
35
ad valorem Specific per
tax (%)
stick tax (Rp)
2008
16
16
16
NA
12
NA
4
NA
4
Combined II and III
32
31
18
14
35
6
35
0
27
HJE
(Rp per stick)
275
275
50
50
40
180
600
383
374
520
336
234
375
225
217
600
383
374
HJE
(Rp per stick)
2008
Sources: Ministry of Finance Regulations No. 118.PMK.04/2006, effective from March 2007, specific tax effective since July 2007, and No. 134/PMK.04/2007, effective in 1 January 2008. Production scales
set forth in 43/PMK.04/2005, effective from July 2005, and No. 134/PMK.04/2007, effective 1 January 2008. HJE: Retail price; KLB: Klobot, corn husk wrapped cigarettes; KLM: Kelembak, incense clove
cigarettes; SPT: hand-rolled white (tobacco only) cigarettes. NA: not applicable
275
Cigars (CRT)
50
215
345
Sliced leaves, in grams
2007
13
13
16
13
7
3
7
3
HJE
ad valorem
(Rp per stick)
tax (%)
275
275
50
50
50
40
215
180
550
Other cigarettes (KLB, KLM, SPT)
18
13
7
3
36
32
24
36
32
24
Specific per
stick tax (Rp)
NA (Only one category of SKT)
475
395
380
275
345
265
255
550
450
440
Machine-made white (tobacco only) cigarettes (SPM)
Filtered hand-made kreteks (SKTF)
2007
HJE
ad valorem
(Rp per stick)
tax (%)
Machine-made kreteks (SKM)
Tobacco product
B. Tobacco tax scales for imported products
I
II
III
Production
tier
Machine-made
kreteks (SKM)
Tobacco
product
A. Reduced tax rates for net exporters
Annex 3.3: Tobacco Tax Scales for Net Exporters (firms that export higher quantities compared with domestic sales) (A),
and Tax Scales for Imported Tobacco Products (B)
70
Annex 3.4:
Form for Calculation of HJEa for Imported Tobaccco Products (CK-21B)
This calculation is per pack
Name of Importer: _________________________________________________________________________
Address of Factory: ________________________________________________________________________
Name of Owner: ___________________________________________________________________________
Address of Owner: _________________________________________________________________________
NPPBKC : __________________________________________________________________________________
(Factory Identity Number)
NPWP (Tax Identity Number): ____________________________
Nomor PKP (PKP Number): ____________________________
Type of Tobacco Product : ____________________________
Volume per pack: ____________________________ sticks / gram
Weight per stick: ____________________________ gram
Retail Price Per Pack:
Excise tariff:
Exchange Rate US$ 1.00:
Rp ____________________________
____________________________
Rp ____________________________
Price of Ingredients and related costs:
Value
1. Port Value [CIF]:
Rp ___________________
2. Import Duty:
Rp ___________________
3. Added / Other Duty:
Rp __________________
4. Excise: _______% x ________Rp (number 15):
Rp ___________________ +
5. Import Value:
Rp __________________
6. Income Tax for Import _______% x _______________Rp (number 5):
Rp __________________
7. Value Added Tax for Tobacco Product 8.4% x _________Rp (number 15): Rp __________________
8. Other Government Tax:
Rp __________________
9. Factory Cost:
Rp __________________
10. Other Cost:
Rp __________________ +
11. Base price:
Rp __________________
12. Profit for Importer:
Rp __________________ +
13. Factory Transaction Price:
Rp __________________
14. Profit for Distributors, Agents and Retailers:
Rp __________________ +
15. Retail Price:
Rp __________________
a HJE is the “retail sales price,” and represents the factory price inclusive of taxes, profit, and transaction costs.
Source: Director General of Customs and Excise, Regulation No. 07/BC/2005, Ministry of Finance, Indonesia.
Annex 5.1: Top Tobacco Leaf-Producing Countries, 2005
Rank
1
2
3
4
5
6
7
8
9
10
Country
China
Brazil
India
USA
Indonesia
Turkey
Greece
Argentina
Italy
Pakistan
Total Top 10 producers
Production
(US$ 1000)
4,886,230
1,601,974
1,090,286
528,916
257,074
256,556
224,256
215,140
200,554
153,880
Production
(ton)
2,685,500
878,651
598,000
290,100
141,000
140,716
123,000
118,000
110,000
84,400
% of world production
9,414,866
5,169,367
78.6
40.8
13.4
9.1
4.4
2.1
2.1
1.9
1.8
1.7
1.3
Sources: FAOSTAT, Food and Agricultural Organization Statistics Division, Economic and Social Department.
Annex 5.2: Annual Tobacco Leaf Production, Quantity of Imported and Exported Leaf, and Import and Export Ratios
Year
Domestic
production (tons)
Imported leaf (tons)
Import ratio
Exported leaf (tons)
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
57,352
126,558
76,507
78,071
95,665
89,798
84,502
82,466
120,299
85,487
109,646
106,802
109,484
107,825
160,765
101,235
112,691
116,917
80,979
156,432
140,258
111,655
121,370
130,134
140,169
151,025
209,626
105,580
135,384
204,329
199,103
192,082
200,875
165,108
153,470
4,767
8,176
5,616
16,769
9,661
9,455
9,476
11,909
13,148
20,047
21,622
16,563
13,523
13,229
7,942
9,824
11,542
10,510
13,601
26,546
28,542
25,108
30,226
40,321
47,953
45,060
47,108
23,219
40,914
34,248
44,346
33,289
29,579
35,171
48,142
8.31%
6.46%
7.34%
21.48%
10.10%
10.53%
11.21%
14.44%
10.93%
23.45%
19.72%
15.51%
12.35%
12.27%
4.94%
9.70%
10.24%
8.99%
16.80%
16.97%
20.35%
22.49%
24.90%
30.98%
34.21%
29.84%
22.47%
21.99%
30.22%
16.76%
22.27%
17.33%
14.73%
21.30%
31.37%
17,748
25,638
32,558
25,513
19,762
20,630
25,927
25,586
23,362
28,339
24,800
19,100
22,400
19,317
20,227
23,092
18,745
18,239
17,721
17,401
22,403
32,365
37,259
30,926
21,989
33,340
42,281
49,960
37,096
35,957
43,030
42,686
40,638
46,463
53,729
Export ratio
30.95%
20.26%
42.56%
32.68%
20.66%
22.97%
30.68%
31.03%
19.42%
33.15%
22.62%
17.88%
20.46%
17.92%
12.58%
22.81%
16.63%
15.60%
21.88%
11.12%
15.97%
28.99%
30.70%
23.76%
15.69%
22.08%
20.17%
47.32%
27.40%
17.60%
21.61%
22.22%
20.23%
28.14%
35.01%
Net export
value (US$ 000)
28,223
27,009
36,717
24,965
17,819
34,140
49,770
45,755
47,647
32,687
22,465
4,381
21,734
9,685
26,299
41,118
29,511
15,204
22,355
16,649
-570
16,404
-10,759
-46,954
-54,018
-49,781
-53,024
71,581
-36,185
-43,546
-48,206
-27,286
-32,317
-30,236
-34,923
Sources: Ministry of Agriculture. Agricultural statistics, Central Bureau of Statistics, 2002. Export Import Statistics 2001. Net export value is the US$ value of exports minus
the US$ value of imports.
72
Annex 5.3: Percentage of Tobacco Area to Total Arable Land, Indonesia, 2000-2005
2000
Arable land (ha)
Tobacco area (ha)
2001
2002
2003
2004
2005
20,500,000
22,000,000
22,000,000
23,000,000
23,000,000
23,000,000
239,737
260,738
256,081
256,926
200,973
198,212
1.17
1.19
1.16
1.12
0.87
0.86
Tobacco area to
arable land (%)
Source: FAO STAT and Ministry of Agriculture (various years). HA = hectare; FAO statistics differ from Ministry of Agriculture figures.
Annex 5.4: Tobacco Cultivation Area as a Percent of Total Arable Land by Province, 2005
Provinces
Tobacco cultivation area
East Java
Tobacco area as % of total arable land
109,918
0.48
Central Java
43,844
1.78
West Nusa Tenggara
23,992
4.50
West Java
7,482
0.28
Daerah Istimewa Yogyakarta
3,303
0.21
North Sumatera
2,685
0.06
South Sulawesi
2,598
0.07
West Sumatera
1,293
0.05
Bali
1,062
0.18
East Nusa Tenggara
Other
Total
499
0.07
1,536
0.01
198,212
0.29
Source: Ministry of Agriculture, tree crop estate statistics of Indonesia 2004-2006. CBS, area and its use in Indonesia, 2005. Note: Arable land is
area of wet land (lahan sawah) plus area of dry land (lahan bukan sawah) minus swamps, dyke, and pond.
Annex 5.5: Tobacco Farmers as a Percent of the Total Labor Force, 1996-2005
Year
Number of
tobacco farmers
Tobacco farmers
as a % of the total
agricultural labor
force
Tobacco farming
Full-time
Equivalent (FTE)*
Tobacco farming
FTE as % of total
agricultural labor
force
Tobacco farming
FTE as % of total
labor force
1996
668,844
1.8
572,707
1.5
0.66
1997
893,620
2.5
632,148
1.6
0.64
1998
400,215
1.0
420,337
1.4
0.64
1999
636,152
1.7
424,868
1.1
0.48
2000
665,292
1.5
608,932
1.1
0.48
2001
913,208
2.3
662,275
1.1
0.46
2002
808,897
2.0
650,446
1.6
0.71
2003
714,699
1.7
652,275
1.6
0.72
2004
693,551
1.7
510,471
1.3
0.54
2005
683,603
1.7
503,458
1.2
0.53
Sources: Ministry of Agriculture, December 2006, BPS (Sakernas) and Ministry of Agriculture, various years. Demographic Institute, University of Indonesia.
Annex 5.6: Clove Production, Import and Export Ratios, and Net Export Values, 1990-2005
Year
Domestic
production
(‘000 tons)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
66.91
80.25
73.12
67.37
78.38
90.01
59.48
59.19
67.18
52.90
74.05
80.68
87.91
116.42
110.51
110.50
Import
ratio
Export
ratio
Clove exports
as % of total
export value
Clove exports
as % of non oil and
gas export value
1.32%
0.86%
0.03%
1.10%
0.48%
0.01%
0.82%
2.35%
1.71%
14.03%
8.01%
7.47%
0.11%
0.03%
0.06%
0.54%
0.36%
0.40%
0.49%
1.04%
0.80%
0.71%
1.16%
1.01%
21.57%
2.99%
4.36%
4.72%
7.39%
10.83%
5.98%
8.56%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.02%
0.00%
0.01%
0.01%
0.03%
0.03%
0.02%
0.02%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.03%
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
0.07%
Source: FAO statistical database
Annex 5.7: Summary of Costs, Revenue, and Profit (in Rp) for Tobacco in Comparison with Other Crops at Low
and High Input Levels, Central Java, Indonesia
Low input level
Tobacco
Tobacco
Total cash costs
Before sale
After sale
Total production costs
8,404
7,605
799
Chili
High input level
Garlic
Ground nut
14,162
12,907
1,255
16,500
14,630
1,870
8,798
7,885
913
Nilam
Potato
1,881
1,674
207
7,538
7,103
435
6,253
5,458
795
9,029
14,911
16,651
10,568
2,991
7,989
13,933
Total cost per ton
15,048
12,426
1,850
4,144
2,918
258
1,072
Gross revenue
13,170
24,984
31,500
12,750
6,150
15,500
36,400
4,141
10,073
14,849
2,182
3,159
7,511
22,467
Net Profit
(gross revenue - total cost)
Source: John C. Keyser and Nila Ratna Juita, Smallholder Tobacco Growing in Indonesia: Costs and Profitability Compared with Other Agricultural Enterprises,
World Bank HNP discussion paper. Feb 2007; summarized in Curbing the Tobacco Epidemic in Indonesia: Evidence and Options, Draft January 2004. The World
Bank.
74
Annex 5.8: Market Share of 8 Cigarette Industries: 1979, 1989, 1994 (%)
Brand
1979
1989
1994
Gudang Garam
12
28
43
Djarum
13
28
18
Bentoel
8
11
7
Sampoerna
1
3
7
BAT
15
3
5
Marlboro
0
2
5
Nojorono
4
3
2
STTC
10
4
1
Faroka
4
1
1
Others
33
17
11
Total
100
100
100
Source: Bird, 1999.
Annex 5.9: Market Share by Kretek and White Cigarette Industries, 1995-1998
Company
1995
1996
1997
1998
%
total
%
total
%
total
%
total
Gudang Garam
47.0
41.3
47.0
41.1
48.0
42.1
47.0
40.2
Djarum
16.0
14.0
14.0
12.5
14.0
12.2
13.0
11.0
Bentoel
5.0
4.8
3.0
2.4
1.0
1.4
3.0
2.3
11.0
9.6
12.0
10.7
12.0
10.5
12.0
10.4
Sampoerna
Noyorono
3.0
2.3
3.0
2.1
2.0
1.7
2.0
2.1
18.0
15.5
21.0
19.1
23.0
20.2
23.0
19.8
100.0
87.5
100.0
87.9
100.0
88.1
100.0
85.8
White cigarette manufacturers
--
12.5
--
12.1
--
11.9
--
14.2
Total
--
100.0
--
100.0
--
100.0
--
100.0
Others
Total Kretek
Source: Jardin Fleming Research (1999).
Annex 5.10: Annual Cigarette Production, Quantity of Imports and Exports, and Import and Export Ratios
Year
Domestic
production
(million sticks)
Imports leaf
(million sticks)
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
44,501
49,907
56,800
59,830
66,290
60,890
69,756
83,900
90,100
86,200
93,275
100,334
106,611
115,943
115,000
136,271
145,170
155,300
151,000
153,200
162,400
177,050
186,200
211,823
225,385
216,200
225,417
232,724
221,293
231,185
226,611
209,668
192,340
203,880
220,310
1,865
1,717
2,702
2,386
4,845
5,453
6,359
6,138
6,900
7,998
7,797
8,425
10,391
10,563
8,964
6,181
7,000
13,476
10,030
9,294
1,438
9,364
1,854
1,667
13,491
5,138
4,667
10,909
3,591
3,046
2,060
542
4,887
5,158
1,060
Import ratio
4.19%
3.44%
4.76%
3.99%
7.31%
8.96%
9.12%
7.32%
7.66%
9.28%
8.36%
8.40%
9.75%
9.11%
7.80%
4.54%
4.82%
8.68%
6.64%
6.07%
0.89%
5.29%
1.00%
0.79%
5.99%
2.38%
2.07%
4.69%
1.62%
1.32%
0.91%
0.26%
2.54%
2.53%
0.48%
Exports
(million sticks)
-1,333
1,353
2,600
5,991
6,738
7,932
8,948
9,943
10,976
11,911
12,318
14,010
13,713
12,713
10,352
5,903
6,156
4,052
3,055
3,872
3,811
3,293
3,179
4,016
4,724
4,211
4,202
4,746
6,209
5,542
6,056
6,009
5,218
5,273
Sources: Ministry of Agriculture. Agricultural statistics, Central Bureau of Statistics, 2002. Export Import Statistics 2001.
Export ratio
-2.67%
2.38%
4.35%
9.04%
11.07%
11.37%
10.67%
11.03%
12.73%
12.77%
12.28%
13.14%
11.83%
11.05%
7.60%
4.07%
3.96%
2.68%
1.99%
2.38%
2.15%
1.77%
1.50%
1.78%
2.19%
1.87%
1.81%
2.14%
2.69%
2.45%
2.89%
3.12%
2.56%
2.39%
Exports as %
total of export
value
-------------------0.26%
0.30%
0.36%
0.28%
0.18%
0.26%
0.26%
0.26%
0.21%
0.23%
0.22%
0.31%
0.28%
0.22%
0.20%
0.22%
76
Annex 5.11: Firms in Tobacco Manufacturing, by Industry Scale, Indonesia, 2004
Type of firm
Large
Number
Dried and processed tobacco
Medium
%
Number
Total
%
Number %
46
20.44
447
76.41
493
60.86
Clove cigarette
148
65.78
87
14.87
235
29.01
White cigarette
5
2.22
5
0.85
10
1.23
23
10.22
30
5.13
53
6.54
3
1.33
16
2.74
19
2.35
225
100.00
585
100.00
Other types of cigarette
Related products (cigarette sauce/flavors)
Total
810 100.00
Source: Indicator of Large and Medium Enterprise, Central Board of Statistics, 2004.
Annex 5.12: Employment in Cigarette Manufacturing, as a % of Manufacturing and Total Employment
Year
No. employed in
cigarette
manufacturing
Total
manufacturing
employment
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
132,000
124,000
138,000
116,000
127,550
132,300
165,000
161,700
142,600
151,700
158,700
157,000
160,400
167,200
167,000
203,800
197,800
201,700
202,800
213,200
204,921
183,253
182,817
184,304
215,008
230,676
223,307
225,640
238,848
244,522
245,626
260,189
265,378
265,666
258,678
482,385
505,362
610,960
618,990
616,210
706,171
794,800
784,900
814,200
856,900
963,000
1,004,900
1,059,830
1,112,360
1,190,420
1,671,990
1,679,260
1,776,710
2,058,250
2,247,110
2,649,440
2,981,130
3,298,120
3,559,380
3,798,610
4,224,770
4,214,967
4,154,837
4,123,612
4,234,983
4,366,816
4,382,788
4,364,869
4,273,880
4,324,979
Total
employment
------53,443,700
48,314,700
51,780,400
51,004,400
51,554,000
-57,802,801
--62,457,138
68,338,200
70,402,443
72,518,100
73,424,894
75,850,600
76,423,200
78,104,100
79,201,000
82,037,000
80,110,000
85,701,813
87,050,000
87,673,600
88,816,859
89,837,730
90,807,417
91,647,166
90,784,917
93,722,036
Sources: World Bank, Ministry of Industry, Demographic Insitutute, University of Indonesia.
% of
manufacturing
employment
% of total
employment
27.36%
24.54%
22.59%
18.74%
20.70%
18.73%
20.76%
20.60%
17.51%
17.70%
16.48%
15.62%
15.13%
15.03%
14.03%
12.19%
11.78%
11.35%
9.85%
9.49%
7.73%
6.15%
5.54%
5.18%
5.66%
5.46%
5.30%
5.43%
5.79%
5.77%
5.62%
5.94%
6.08%
6.22%
5.98%
------0.31%
0.33%
0.28%
0.30%
0.31%
-0.28%
--0.33%
0.29%
0.29%
0.28%
0.29%
0.27%
0.24%
0.23%
0.23%
0.26%
0.29%
0.26%
0.26%
0.27%
0.28%
0.27%
0.29%
0.29%
0.29%
0.28%
Annex 5.13: Ranking of all Sectors Contributing to Total Employment (Input-Output Tables, Central Statistical
Bureau (BPS))
I-O Code 66 Sectors
53
5
1
65
52
63
4
56
64
2
3
36
37
54
23
18
20
10
9
62
29
19
8
17
35
59
16
32
12
11
7
61
21
30
28
49
60
26
27
43
48
50
38
47
14
40
42
34
57
24
13
44
55
51
22
6
46
45
25
41
39
33
31
15
58
66
Sectors
Trade
Vegetables and Fruits
Paddy
Others Services
Construction
General Government and Defense
Root Crops
Road Transport
Social and Community Service
Beans
Maize
Manufacture of Textile, Apparel and Leather
Manufacture of Bamboo, Wood and Rattan Products
Restaurant and Hotel
Fishery
Livestock
Poultry and Its Product
Oil Palm
Coconut
Real Estate and Business Services
Rice Milling
Slaughtering
Sugarcane
Other Agriculture
Yarn Spinning
Services Allied to Transport
Other Estate Crops
Manufacture of Other Food Product
Coffee
Tobacco
Rubber
Financial Intermediaries
Wood
Manufacture of Flour All Kind
Manufacture of Oil and Fat
Manufacture of Transport Equipment and Its Repair
Communication
Other Mining and Quarrying
Manufacture of Food Processing and Preserving
Manufacture of Non Metallic Mineral Product
Manufacture of Machine, Electrical Machinery, and Apparatus
Manufacture of Other Products Not Elsewhere Classified
Manufacture of Paper, Paper Products and Cardboard
Manufacture of Fabricated Metal Products
Clove
Manufacture of Chemicals
Manufacture of Rubber and Plastic Wear
Manufacture of Cigarettes
Water Transport
Coal and Metal Ore Mining
Tea
Manufacture of Cement
Railway Transport
Electricity, Gas, and Water Supply
Other Forest Product
Other Food Crops
Manufacture of Non Ferrous Basic Steel
Manufacture of Basic Iron and Steel
Crude Oil, Natural Gas and Geothermal Mining
Petroleum Refinery
Manufacture of Fertilizer and Pesticides
Manufacture of Beverages
Sugar Factory
Fibber Crops
Air Transport
Unspecified Sector
Employment
15,518,065
10,935,873
10,547,125
4,296,005
4,211,953
4,040,401
3,562,098
3,437,581
3,177,138
2,493,338
2,479,703
2,423,941
2,343,481
2,280,222
1,632,734
1,630,090
1,518,424
1,252,014
994,009
933,846
824,874
795,302
793,104
749,805
713,390
682,979
661,483
640,594
626,751
624,039
598,096
573,363
516,269
503,317
502,071
481,906
472,760
450,076
428,072
415,657
405,367
401,392
399,103
392,157
382,991
378,310
355,665
333,443
325,984
229,731
214,854
209,246
177,084
157,718
148,397
145,243
114,272
104,919
101,372
100,974
75,953
74,126
69,381
59,207
34,799
5,649
%
15.97
11.26
10.86
4.42
4.34
4.16
3.67
3.54
3.27
2.57
2.55
2.49
2.41
2.35
1.68
1.68
1.56
1.29
1.02
0.96
0.85
0.82
0.82
0.77
0.73
0.70
0.68
0.66
0.65
0.64
0.62
0.59
0.53
0.52
0.52
0.50
0.49
0.46
0.44
0.43
0.42
0.41
0.41
0.40
0.39
0.39
0.37
0.34
0.34
0.24
0.22
0.22
0.18
0.16
0.15
0.15
0.12
0.11
0.10
0.10
0.08
0.08
0.07
0.06
0.04
0.01
RANK
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
Source: Ahsan A, Wiyono IN. The impact analysis of higher cigarette prices to employment in Indonesia. Demographic Institute, Faculty of Economics, University of
Indonesia, 2007.
78
Annex 5.14: Number of Kretek and White Cigarette
Firms, 1961-2004
Annex 5.15: Location of Kretek Manufacturers,
1961-1993
Year
Total kretek
Total white
Total
1961
941
NA
NA
Central Java
1972
287
NA
NA
Gombong
Location of firm
1961 1978 1982 1984 1985 1989 1993
60
13
13
13
11
8
8
1973
315
NA
NA
Solo
67
11
8
7
6
7
6
1974
282
NA
NA
Kudus
209
81
82
53
32
22
28
1975
283
21
304
Magelang
-
11
13
12
9
4
4
1976
307
NA
NA
Semarang
53
7
6
5
5
6
6
1977
321
NA
NA
1978
243
NA
NA
Bojonegoro
31
9
9
9
7
15
22
1979
246
NA
NA
Madiun
83
16
19
19
12
8
7
1980
263
NA
NA
Kidiri
131
33
35
25
23
12
22
East Java
1981
263
16
279
Surabaya
112
29
33
35
11
9
10
1982
263
16
279
Malang
134
25
33
25
19
15
22
1983
256
16
272
Blitar
-
5
5
5
4
3
3
1984
212
17
229
West Java
29
-
-
-
-
-
-
1985
143
17
160
1986
128
16
144
16
-
4
4
4
4
3
1987
128
16
144
1988
119
16
135
16
3
3
-
-
-
-
1989
113
16
129
Total
941
243
263
212
143
113
141
1990
118
16
134
Source: Tarmidi L. 1996.
1991
122
15
137
1992
122
15
137
1993
141
10
151
1994
175
10
185
1995
201
11
212
1996
203
12
215
1997
190
10
200
1998
200
10
210
1999
209
10
219
2000
210
10
220
2001
200
9
209
2002
207
5
212
North Sumatra
Pemantang Siantar
Bali
Denpasar
Annex 5.16: Employment in Tobacco Manufacturing
by Selected Provinces
Provinces
East Java
(2002)
Central Java
(2003)
Total (male
and female)
employment
Tobacco
manufacturing
jobs as
% total
employment
174,304
6,026,458
2.9
84,785
4,155,262
2.0
West Nusa Tenggara
(2004)
1,564
275,184
0.6
3,596
786,984
0.5
9,500
725,642
1.3
2003
201
9
210
Yogyakarta
(2004)
2004
235
10
245
South Sulawesi
(2003)
Source: Large and Medium Scale Industrial Statistics, BPS, several years.
NA: not available.
Employment
in tobacco
manufacturing
Source: Large And Medium Manufacturing Statistics, Various Years
www.datastatistik-indonesia.com
Annex 6.1: Excise Tax Revenues as a Percent of Total Government Revenues and as a Percent of Total Tax Revenues,
1979-2006
1979-80
1980-81
1981-82
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2001
2002
2003
2004
2005
2006
2007
Total
revenues
(billion
rupiah,
nominal)
Total tax
revenues
(billion
rupiah,
nominal)
Excise
revenues
(billion
rupiah,
nominal)
7,050
10,406
13,763
12,815
15,511
18,724
20,347
21,324
24,781
24,088
31,504
42,193
42,582
48,863
56,113
66,418
73,014
87,630
112,276
158,043
205,335
300,600
298,528
340,928
403,032
484,513
659,115
720,400
6,496
9,898
11,857
11,960
13,872
15,221
17,761
14,993
18,827
21,435
16,084
22,011
24,919
30,092
36,665
44,442
48,686
57,340
70,934
102,394
125,951
185,541
210,086
242,008
279,208
347,000
409,200
489,900
327
438
545
620
773
873
944
1,056
1,105
1,390
1,482
1,800
1,915
2,242
2,626
3,153
3,593
4,263
5,101
7,733
10,381
17,394
23,189
26,277
28,442
33,300
37,800
42,000
Source: Ministry of Finance.
Tobacco
excise
(billion
rupiah,
nominal)
297
397
497
532
595
789
883
1,232
1,040
1,173
1,351
1,679
2,100
2,087
2,329
2,650
3,593
4,265
5,110
7,678
10,412
18,266
22,882
25,928
28,636
32,651
36,964
41,160
Excise
Tobacco excise
% total
revenue
Tobacco
excise as
% total
revenue
Tobacco
excise as
% of tax
revenue
4.6%
4.2%
4.0%
4.8%
5.0%
4.7%
4.6%
5.0%
4.5%
5.8%
4.7%
4.3%
4.5%
4.6%
4.7%
4.7%
4.9%
4.9%
4.5%
4.9%
5.1%
5.8%
7.8%
7.7%
7.1%
6.9%
5.7%
5.8%
4.2%
3.8%
3.6%
4.2%
3.8%
4.2%
4.3%
5.8%
4.2%
4.9%
4.3%
4.0%
4.9%
4.3%
4.2%
4.0%
4.9%
4.9%
4.6%
4.9%
5.1%
6.1%
7.7%
7.6%
7.1%
6.7%
5.6%
5.7%
4.6%
4.0%
4.2%
4.4%
4.3%
5.2%
5.0%
8.2%
5.5%
5.5%
8.4%
7.6%
8.4%
6.9%
6.4%
6.0%
7.4%
7.4%
7.2%
7.5%
8.3%
9.8%
10.9%
10.7%
10.3%
9.4%
9.0%
8.4%
80
Annex 6.2: Excise Tax Revenues by Type of
Cigarette, 1979-2005
Year
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Machine-made
kreteks (SKM)
Hand-made
kreteks (SKT)
0.15
0.26
0.41
0.39
0.59
0.51
0.43
0.45
NA
0.38
0.30
0.20
0.19
0.17
0.16
0.12
0.14
0.14
0.13
0.13
0.14
0.13
0.12
0.14
0.17
0.20
0.23
0.23
0.23
0.21
0.20
0.49
0.59
0.74
0.75
0.77
0.79
0.83
0.80
0.80
0.80
0.80
0.78
0.77
0.78
0.77
0.72
0.71
0.67
0.66
0.69
0.72
0.73
White cigarettes
kreteks (SPM)
0.26
0.23
0.17
0.15
0.13
0.10
0.06
0.06
0.06
0.05
0.06
0.06
0.06
0.07
0.07
0.08
0.10
0.10
0.09
0.11
0.10
0.10
0.11
0.09
0.08
0.07
Source: Ministry of Industry estimates
Annex 6.3: State Budget Targets 2008 (trillion rupiah)
Line item
A. Total revenues and grants
I. Domestic revenue
1. Tax revenues
a. Domestic taxes
i. Income tax
ii. Value added tax
iii. Land and building tax
iv. Duties on land and building tax
v. Excises
vi. Other
b. International trade tax
2. Non tax revenues
II. Grants
Source: Budget statistics. APBN 2008, Ministry of Finance
Proposed budget
As % of total
revenues and grants
761.4
759.3
583.7
568.3
305.3
186.6
24.2
4.9
44.4
2.9
15.4
175.6
2.1
100
99.7
76.7
74.6
40.1
24.5
3.2
0.6
5.8
0.4
2.0
23.1
0.3
As % of total
tax revenues
100
97.4
52.3
32.0
4.1
0.8
7.6
0.5
Packaging and
Labeling
Advertisement,
Sponsorship
and Promotion
Section
Manufacturers, advertisers, and
Same as previous PP
retailers can be fined up to Rp
100,000,000 (US$ 10,000) or five years
in jail for violation of advertising
restrictions.
Penalties
and
enforcement
Health
warnings
Health warnings must be included
in advertisements.
Health
warnings
Same as previous PP
The MoH and Coordinating
Ministry for Socal Welfare
authorized 5 alternative
warning messages.
Health warnings must be easy
to read.
The authorized health warning
reads: "Smoking can cause
cancer, heart attacks,
impotence and harm
pregnancy and fetal
development."
Same as previous PP
Advertisements must not
Same as previous PP
encourage people to smoke,
describe or persuade people that
smoking has health benefits, present
pictures and/or writings of cigarettes
or people smoking, target children
or pregnant women, mention that
the product is a cigarette brand.
Not applicable
Direct and indirect advertising and
promotion of cigarettes is prohibited.
Includes printed, electronic and other
media.
Printed media, electronic media and
other media are prohibited from showing
people smoking.
Draft Law (UU) 2007
The authorized health
warning reads "Smoking
can cause cancer, heart
attacks, impotence and
harm pregnancy and
fetal development."
Health warnings must be
placed on the broad size
of the pack
Sanctions for violation
were eliminated
It is prohibited from using words or phrases
that are misleading. Information about
emissions must be explained in a clear and
easy to read manner.
Packaging and labeling on cigarettes
must be in Indonesian.
Written and/or pictoral health warnings
must be placed on the both sides of the
broad side of each pack, comprise 50% or
more of the package, in large letters,
clear, visible, and convincing, and rotated.
Same as previous PP (to be
regulated by ministries)
Violations of prohibition on showing
people smoking in print, electronic
other media: a maximum of 3 yrs in jail
and fines up to 500 million RP (US$ 50,000).
Violation of direct or indirect advertising
and promotion of cigarettes: a maximum
of 5 years in jail and a maximimum fine
of 1 billion RP (US$ 100,000).
In addition to health warnings Not applicable
(15% of advert), every
advertisement must disclose
nicotine and tar levels.
Additional restriction was
Not applicable
added; advertisements cannot violate any norms in society
Allowable hours for
advertisements are explicitly
mentioned (21.30 PM to
05.00 AM local time).
(Explanatory documents clarify
that advertisements are
permitted between 21.30 PM
and 05.00 AM local time)
Content/
design
Same as previous PP
19, 2003
Regulation (PP) Number
Advertisements are permitted
in electronic media in addition
to printed and outdoor media
38, 2000
Advertisements are restricted
to printed and outdoor media
81, 1999
Bans
Article
Annex 6.4: Changes in the Tobacco Control Regulations and Draft Bill, Indonesia, 1999-2007
(referred to as
production in
draft law)
Product
Regulation
and Disclosure
None
None
Machine-made kretek industries
must comply within 7 years and
hand-made kretek industries,
10 years.
Large scale hand-made cigarette
industries must comply within
5 years and small scale hand-made
industries must comply within
5 years.
Penalties
and
Enforcement
Industries producing white
machine-made cigarettes
must comply within 2 years.
Industries producing machine-made
cigarettes must comply within
2 years.
Compliance
Not mentioned
Same as previous PP
Same as previous PP
Not mentioned
Every cigarette produced must
undergo testing for tar and
nicotine levels
Maximum nicotine and tar level for
each cigarette must not exceed
1.5 mg and 20 mg
Additives
Emissions
None
Not applicable
Not applicable
Every production batch must
undergo testing of tar and
nicotine level in an
accredited laboratory
Not mentioned
Producers and importers that do not
implement testing of contents and
emissions for every product will serve
maximum 5 yrs in jail and fined a maximum
of 1 billion RP (US$100,000).
Producers and importers that use additives
that do not fulfill health regulations in the
production process will serve max 5 yrs in
jail and be fined maximum 1 billion RP (US$
100,000).
Not applicable
Producers and importers are prohibited
from employing additives in the production
process that do not comply with health
regulations, with the exception of additives
that are customarily used in the production
of clove cigarettes.
Not applicable
Every cigarette produced must undergo
testing for level of emissions by an
accredited laboratory.
Restriction on maximum tar
Not mentioned
and nicotine level eliminated
Producers and importers that do not include
health warnings on the labels will serve a
maximum of 5 years in jail and fined a
maximum of 1 billion RP (US$ 100,000).
Violation from producers and importers
that use misleading words or phrases will
serve max 3 years in jail and be fined a
max RP 500 million RP (US$ 50,000).
Producers and importers that do not include
information about levels of nicotine, tar, and
carbon monoxide on the label in a clear
and easy to read format will serve max
3 years in jail and be fined a maximum of
500 million RP (US$ 50,000).
Sanctions for violation
were eliminated.
Penalties and
Enforcement
Manufacturers, advertisers, and
Same as previous PP
retailers can be fined up to
Rp 100,000,000 (US$ 10,000) or
five years in jail for violation of
advertising restrictions, and fines
up to Rp 10,000,000 (US$ 1000)
for failure to include heath warnings.
Every package of cigarettes will include
at least 12 sticks.
Draft Law (UU) 2007
Public disclosure of tar and
Same as previous PP
nicotine level for every
cigarette produced required.
19, 2003
Minimum
number of sticks
Same as previous PP
38, 2000
(continued)
Public disclosure of tar and
nicotine content is required.
81, 1999
Disclosure
of emissions
Article
Packaging
and
Labeling
Section
Annex 6.4 continued
82
Price and tax
stick
Sales and
Distribution
Clean air
restrictions
(continued)
Product
Regulations and
Disclosure
Section
Penalties and
Enforcements
None
None
None
Single stick sales
None
None
Sales to minors
Ear-marking
Distribution of free cigarettes is
prohibited
Free tobacco
products
Tax rates
Vending machines are to be
located in places not accessible
to children.
None
Penalties
and
Enforcements
Vending
machine sales
Smoking bans on public places,
including health facilities, religious
facilities, workplaces for teaching
and children activities, and public
transportation.
None
81, 1999
Restricted
places
Penalties
and
Enforcement
Article
Annex 6.4 continued
None
None
None
None
None
Same as previous PP
Same as previous PP
None
Same as previous PP
None
38, 2000
None
None
None
None
None
Same as previous PP
Same as previous PP
None
Same as previous PP
None
19, 2003
10% of revenue generated from tobacco
excise dedicated to tobacco control.
Minimum tax should be 65 % of HJE.
Producers and importers that sell cigarettes
by vending machines will serve a maximum
of 3 years in jail and be fined a maximum
of 500 million RP (US$ 50,000). Every person
that sells cigarettes to children under 18
years will serve a maximum of 3 yrs in jail
and be fined a maximum of 500 million RP.
Every person that sells cigarettes by the
will serve a maximum of 1 yr in jail and be
fined a maximum of 100 million RP (US$
10,000).
No one can sell cigarettes by the stick.
Prohibition from selling cigarettes to
children <18 years of age; prohibition of
children <18 buying cigarettes.
(Included under advertising and
promotions)
Cigarette vending machine sales are
prohibited.
Individual fines for smoking in restricted
areas: penalties of up to 1 year in jail and
50 million RP (US$ 5000). Producers and
importers penalties for promotion in smokefree areas: up to 3 years in jail and 500
million RP (US$ 50,000).
Those responsible that do not implement
clean air regulations will serve a maximum
of 5 years in jail and fined a max of
1 billion RP /US$ 100,000.
Same as previous PP
(Noted that a proportion of the
earmarked tax for regional governments
to implement clean air legislation)
Producers and importers that do not
implement testing of contents and
emissions for every product will serve
maximum 5 yrs in jail and fined a
maximum of 1 billion RP (US$100,000).
Producers and importers that use
additives that do not fulfill health
regulations in the production process will
serve max 5 yrs in jail and be fined
maximum 1 billion RP (US$ 100,000).
Draft Law (UU) 2007
84
Annex 6.5: Comparing Firm Size as Measured by Central Statistical Bureau (BPS) and the Excise Tax
Bureau
BPS (2004)
Tax Directorate (2006)
Size definition
No. firms
(No. workers)
Large
Kretek
Size definition
White
No. firms
(No. sticks per year)
100+
148
5
I
>2 billion
Medium
20 - 99
87
5
II
>500 million -≤2 billion
25
Small
5 - 19
3479
–
IIIA
>6 million- ≤500 million
96
Home/Very small
1-4
16965
–
IIIB
≤6 million
Total
20689
6
3834
3961
Sources: Firms figures from Central Statistical Bureau, and Tax Figures from Policy Direction Strategy on Tobacco Products-Based Excise (Excise Roadmap)
2007-2010. Directorate of Excise May 2007.
Acknowledgements
This report was developed by a team led by Dr. Sarah
Barber, University of California, Berkeley, and Professor
Dr. Sri Moertiningsih Adioetomo, Mr. Abdillah Ahsan,
and Ms. Diahhadi Setyonaluri, Demographic Institute,
Faculty of Economics, University of Indonesia. Team
members included Mr. Nurhadi Wiyono, Ms. Dewi
Prihastuti, Mr. Muhammad Halley Yudistira, and Mr.
Muhammad Sowwam.1
The research team carried out structured interviews
to collect data about tobacco tax administration
and implementation. The full interviews are published
separately.2 Also commissioned for this report was work
that aimed to strengthen and expand on a prior study
conducted by the Demographic Institute, Faculty of
Economics, University of Indonesia, which examined
the implications of a tax increase on employment in
the manufacturing and agricultural sectors. This work
was conducted by Mr. Abdillah Ahsan and Mr.
Nurhadi Wiyono, with technical input from Dr. Hana
Ross, American Cancer Society.3 Much of the basic
data built on sources and citations identified in The
Tobacco Sourcebook, a multi-year effort to collect
data about all aspects of tobacco consumption and
production, published in 2004 by the Ministry of Health,
Republic of Indonesia.4
1
2
3
4
Mr. Frans Rupang, Director of Excise Tax Directorate,
and Mr. Soenaryo, Excise Tax Directorate, Ministry of
Finance, were important resource persons for this
report. We are grateful for comments and advice from
Dr. Teh-Wei Hu, School of Public Health, University of
California, Berkeley; Dr. Suahasil Nazara, Demographic
Institute, Faculty of Economics, University of Indonesia;
Dr. Ari Kuncoro, Institute of Economic and Social
Research, Faculty of Economics, University of Indonesia;
Dr. Frank Chaloupka, University of Chicago; Dr.
Michael Ong, University of California, Los Angeles;
Dr. Anne-Marie Perucic, World Health Organization,
Geneva; and Dr. Tom Frieden, NYC Health Commissioner;
Dr. Kelly Henning, Bloomberg Philanthropies. Mr. Burke
Fishburne, World Health Organization, WPRO, also
provided useful advice. Dr. Widyastuti Soerojo,
Indonesian Public Health Association (IAKMI), provided
us with prevalence data, and Dr. Ayda Yurekli,
Research for International Tobacco Control, provided
comparative country data about prices and taxes. We
are grateful for funding from Bloomberg Philanthropies
for this work. Capable grants administration was
provided by the International Union Against
Tuberculosis and Lung Diseases (The Union) and IAKMI.
We thank Ms. Diahhadi Setyonaluri and Ms. Rima
Prama Artha for their excellent work on translation. The
authors remain responsible for all errors and omissions.
Abdillah Ahsan, Nurhadi Wiyono, Diahhadi Setyonaluri, Dewi Prihastuti, Yudistira, Sowwam. Tobacco Control Country Study, Indonesia.
Demographic Institute, Faculty of Economics, University of Indonesia, 2007.
Abdillah Ahsan, Nurhadi Wiyono, Diahhadi Setyonaluri, Dewi Prihastuti, Muhammad Halley Yudhistira, Muhammad Sowwam.
Implementation of tobacco tax. Indonesia, 2007.
Abdillah Ahsan, Nurhadi Wiyono. The Impact Analysis of Higher Cigarette Prices on Employment in Indonesia, Demographic Institute,
Faculty of Economics, University of Indonesia 2007.
Ministry of Health, The Tobacco Sourcebook: Data to support a national strategy, Republic of Indonesia 2004.
86
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ISBN: 978-2-914365-40-6
Protecting Children and Families from Tobacco: Leadership Training Additional Resources for INDONESIA World Health Organization http://www.who.int/countries/idn/en/ http://www.ino.searo.who.int/EN/Index.htm http://www.who.int/countryfocus/cooperation_strategy/ccs_idn_en.pdf Campaign for Tobacco‐Free Kids http://www.tobaccocontrollaws.org/legislation/country/indonesia http://global.tobaccofreekids.org/en/industry_watch/case_studies/indonesia_tobacco_control_
advocates http://global.tobaccofreekids.org/files/pdfs/reports_articles/tobaccosourcebook_indonesia.pdf Indonesia ‐ General http://www.depkes.go.id/