The Increase In Cigarette Excise Tariffs Is Not Effective In Maintaining IHT Balance

JAKARTA - The results of a study by the Center for Economic Policy Research at the Faculty of Economics, Universitas Brawijaya (PPKE-FEB UB) Malang, East Java, stated that the policy of increasing excise rates on tobacco products was ineffective in maintaining the balance of tobacco products industry (IHT) policies.

The reason is, according to senior PPKE-FEB UB researcher Joko Budi Santoso, there is a shift pattern for cigarette consumers to consume cheaper cigarettes when cigarette prices increase.

The increase in cigarette excise rates, he continued, shows the effect of substitution, which consumers who are sensitive to prices tend to switch from class 1 (expensive cigarettes) to cheaper 2 and 3 cigarettes with lower excise.

This phenomenon is clearly seen when excise rates increase, the price of class 1 cigarettes increases sharply, but the total consumption of cigarettes remains stable at 32.5 percent until excise rates reach 25 percent.

"That the policy of increasing excise rates is not effective in reducing cigarette consumption as a whole, because there is only a shift in consumption from expensive products to cheaper products," he said.

The results of the PPKE-FEB UB study stated that the policy of increasing excise rates, either with or without the increase in cigarette prices, was not effective in reducing cigarette consumption significantly.

According to Joko, the effect of substitution is the main obstacle, where consumers switch to cheaper products, while the circulation of illegal cigarettes increases in addition, legal cigarette production decreases, the number of factories decreases, and the basis for state revenues shrinks.

To achieve the objectives of controlling consumption and optimizing state revenues, he added, more comprehensive policies are needed, such as strengthening supervision of illegal cigarettes, balanced price strategies between groups, and health education to gradually suppress cigarette demand.

"With this approach, fiscal policy can be more effective in controlling cigarette consumption while minimizing negative impacts on industry and state revenue," he said as quoted by ANTARA, Friday, December 27.

He said policies that support the sustainability of the small cigarette industry, the prevention of illegal cigarettes, and a data-based approach to consumption control are very important for the sustainability of the tobacco products industry sector and national economic balance.

So this requires continuous evaluation and cross-sector integration to ensure more effective and inclusive policies.

PPKE-FEB UB hopes that this study can be an important basis for multi stakeholders to formulate wiser policies, especially in balancing between tobacco consumption control, eradicating illegal cigarettes, and the sustainability of the tobacco products industry (IHT).

"Positive responses from the public show the high public concern for this issue, as well as a momentum to encourage collaboration between the government, academics, and industry players in creating more inclusive, sustainable, and broad excise policies for the economy and public health," he said.