Cigarette Excise Increase Triggers Decline In Production

Illustration. (Photo: Doc. Between)

JAKARTA - A number of cigarette manufacturers are lowering production due to falling sales margins following a 12.5 percent increase in the average cigarette excise rate that took effect on February 1, 2021.

"The decrease in the production of a number of cigarette manufacturers is part of the company's decision to manage the increasing production costs", said capital market analyst and Founder & CEO Finvesol Consulting Fendi Susiyanto, in a statement in Jakarta, quoted from Antara, Friday, April 9.

Thus, as of 2021, the production of some manufacturers is in group 2A, from before in group 1.

Class 2A cigarette factory with a cigarette production limit between 500 million rods to 3 billion rods per year, than before in group 1 with the production of more than 3 billion rods per year.

According to Fendi, cigarette manufacturers are reducing production such as PT Nojorono Tobacco International (NTI), Korea Tomorrow & Global Corporation (KT&G).

According to Fendi, currently, the difference in tax rates between groups 1 and 2A for the Cigarette segment reaches IDR 330 per piece.

"The large difference in Class 1 and 2 tax rates allows companies to have more space to manage costs while maintaining competitive product prices", he said.

In Indonesia, KT&G has three companies, namely cigarette manufacturers PT Trisakti Purwosari Makmur, KT&G Indonesia, and PT Nusantara Indah Makmur which are specialized in cigarette sales.

As noted from KT&G's website, the company is the largest cigarette manufacturer in South Korea and ranks among the top five cigarette manufacturers in the world. The company's products are currently sold in more than 50 countries, including Indonesia.

In addition to KT&G, Nojorono Tobacco International cigarette factory also decreased their production, which is the fifth-largest cigarette company in Indonesia which was also previously in group 1.

Meanwhile, Senior Policy Analyst of the Fiscal Policy Agency of the Ministry of Finance Wawan Juswanto said, based on data on the number of cigarette production in group 1 tends to fall.

"On the contrary, group 2 and group 3 cigarette manufacturers are growing positively", he said.

A discourse on the decreased production from group 1 to group 2, resulting in the market share of cigarettes group 1 decreased and vice versa for group 2 and 3 increased.

"This shows the shift of expensive cigarettes to cheap", he said.