Sri Mulyani Wants Cigarettes To Be Less And Less Affordable, What Is The Fate Of Tobacco Farmers And Cigarette Companies?

Minister of Finance, Sri Mulyani. (Photo: Instagram @smindrawati)

JAKARTA - The government officially increases cigarette excise tax by 12.5 percent. This new regulation will be effective from February 1, 2021. The government's decision to increase cigarette excise tax amid the COVID-19 pandemic has drawn reactions from tobacco farmers to cigarette entrepreneurs. They asked the government to cancel it.

Finance Minister Sri Mulyani Indrawati said the increase in cigarette excise tax, which is scheduled for 2021, is to control the level of cigarette consumption in Indonesia.

In addition, said Sri, this policy is the government's commitment to continue to strive to balance various aspects of tobacco excise (CHT). This is in accordance with the vision and mission of President Joko Widodo to emphasize advanced human resources (HR) and superior Indonesia.

"The price of cigarettes is more expensive or the affordability index has increased from 12.2 percent to 13.7-14 percent. So that cigarettes are increasingly unbuyable," Sri Mulyani said in a webinar, Thursday, December 10.

The former Managing Director of the World Bank explained that an aspect to be considered in the cigarette excise policy next year is controlling consumption in accordance with the National Medium Term Development Plan (RPJMN). Where the prevalence of smoking, especially those aged 10 to 18 years, is targeted to decrease by 8.7 percent by 2024.

"The government hopes to reduce the prevalence of smoking in children and women. The prevalence of smoking is recorded in general to drop from 33.8 percent to 33.2 percent in 2021," he explained.

Not only that, the policy was also carried out in order to protect 158,552 workers in direct cigarette factories, especially those concentrated in the hand-rolled kretek cigarette industry.

In addition, the government also helps to protect the tobacco-producing farmers, with a total of 526,389 families or the equivalent of 2.6 million people who depend on tobacco farming.

"The magnitude of the increase in excise rates takes into account the level of tobacco absorption from local farmers. Thus, 526 thousand heads of families who depend on tobacco farming can not be threatened by the increase in tobacco excise (CHT)," he said.

The minister specified that for industries that produce machine white cigarettes (SPM) class I rose 18.4 percent, machine type II A white cigarettes rose 16.5 percent, and machine white cigarettes II B rose 18.1 percent. Then for machine kretek (SKM) class I rose 16.9 percent, machine kretek II A rose 13.8 percent, and machine kretek II B rose 15.4 percent.

Meanwhile, said Sri Mulyani, for the hand-rolled kretek cigarette industry, the excise tariff has not changed or has not been raised, which means that the increase is zero percent because it has the largest labor element.

"With this composition, the average increase in excise rates is 12.5 percent," he said.

The government did not carry out class simplification because the strategy implemented was to reduce the tariff gap between SKM class II A and SKM class II B as well as SPM group II A and SPM group II B.

"So even though we didn't drastically simplify or combine groups, we are giving a signal to the industry that the tariff gap between II A and II B for SKM and SPM is getting smaller or closer to the tariff," he explained.

Sri Mulyani said that the official price or retail selling price in the market is in accordance with the increase in the tariff of each group.

Increase in Excise Excise Makes Shares of Cigarette Companies Fire

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After the news that the government raised cigarette excise by 12.5 percent, this directly affected the stock prices of two national cigarette issuers, PT HM Sampoerna (HMSP) and PT Gudang Garam Tbk (GGRM).

Sampoerna cigarettes. (Photo: Unsplash)

The increase in cigarette excise rates was deemed unfavorable for HMSP and GGRM because the two issuers mostly earned revenue from the SKM segment.

Based on RTI data quoted by VOI, HMSP's shares fell 6.96 percent to a level of Rp1,670 per share at the close of trading on Thursday, December 10. Earlier at the close of trading Wednesday December 9, HMSP's shares were at the level of Ro1,795 per share.

As for GGRM's shares at the close of trading today, it was recorded to have weakened 6.99 percent to the level of IDR44,275 per share. On the previous day, Gudang Garam's shares were at the level of IDR47,600 per share.

Tobacco Farmers and Cigarette Companies Request that Cigarette Excise Increase be Canceled

The tobacco products industry (IHT) is one of the industries that has been hit and is suffering from the COVID-19 outbreak. In fact, IHT is one of the strategic industries that drives the people's economy. Apart from absorbing millions of workers in the cigarette industry, workers also work in the plantation sector and other derivative sectors.

Therefore, according to the Chairman of the Association of Indonesian Cigarette Companies (Gapero) Surabaya, Sulami Bahar, the government should protect IHT by not increasing cigarette excise tax in 2021.

According to him, if the government does not increase cigarette excise tax, it will save hundreds of thousands to millions of workers in the cigarette industry and tobacco plantation sector.

"Saving the national IHT is part of saving the national economy so that the national economy is not dragged into a recession," said Sulami in a written statement received, Thursday, October 15.

On the other hand, according to him, the government increasing cigarette excise will only increase the burden on the national industry. Given that in 2019 the government as stated in PMK (Minister of Finance Regulation) No. 152/2019 has increased the excise and retail price of cigarettes by 23 and 35 percent, respectively.

"Our economy is currently experiencing a recession. Meanwhile, in 2021, it is possible that it will only enter a period of economic recovery. Moreover, the COVID-19 outbreak does not yet know when it will end. Therefore we ask for help from the government, especially the finance ministry, not to make regulations that weaken it. The industry includes the tobacco products industry. Our hope is that in 2021 there will be no increase in excise rates. Or the status quo. There is no policy that raises cigarette excise rates, "said Sulami Bahar.

Tobacco farmer illustration. (Photo: Unsplash)

Meanwhile, the board of the Indonesian Tobacco Farmers Association (APTI) Sahmihudin also urged the government not to issue a policy of raising excise rates in 2021. The reason is, every time the government raises cigarette excise rates, it will not only reduce the number of cigarette sales, but also reduce cigarette production itself.

Sahmihudin added, every 1 percent increase in excise rates issued by the government, resulted in thousands of workers in the tobacco plantation sector losing working hours or losing their livelihoods.

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"In the current very difficult economic conditions due to the COVID-19 outbreak and the increase in excise rates in 2019, if the government raises the excise rate again in 2021, it will make the economy even more difficult. This will result in the suffering of tobacco farming communities throughout Indonesia," he explained.

Increase in Cigarette Excise Amidst Unfair Pandemic

The Association of Cigarette Manufacturers Association (GAPPRI) considers the government's decision to increase the excise tariff for tobacco products (CHT) in 2021 during the COVID-19 pandemic. The rate of increase in the weighted average tariff of 12.5 percent is also considered very high. The increase in each layer ranged from 13.8 percent to 18.4 percent.

"It is not reasonable because industrial performance is decreasing due to weakening purchasing power, because there was a pandemic and a very high increase in excise tax in 2020. Moreover, the current economic growth and inflation figures are still minus," said GAPPRI Chairman Henry Najoan, in a written statement, Thursday. , 10 December.

According to Henry, if you compare the current excise tax increase with normal conditions, where in the past years the economic growth rate was 5 percent and inflation was 3 percent, the increase in excise by an average of 10 percent had an impact on lowering CPI production by around 1 percent.

The very high increase in excise tax in 2021 is estimated to have an impact on the increasing number of illegal cigarettes, the death of small and medium industries, and the uptake of raw materials.

"The high increase in excise tax has caused the price gap between illegal and legal cigarettes to get even further. The increase in the number of illegal cigarette prosecution means the increasing number of illegal cigarettes, even increasing due to the higher gap," he explained.

According to Henry, the industry has not been able to adjust to the maximum selling price due to the 2020 excise increase of 23 percent and HJE (Retail Selling Price) of 35 percent. Where the ideal cigarette price to be paid by consumers this year should increase by 20 percent, but only around 13 percent. This means that there is still 7 percent to achieve the impact of the 2020 tariff increase.

Because of that, the GAPPRI association admitted to objecting to the very high 2021 excise rate increase. Despite the objections, the tobacco products industry respects the government's decision and will comply with the policies that have been made.

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