The Increase In Retail Selling Prices And VAT Will Increase The Circulation Of Illegal Cigarettes

Cigarette Prices (Photo: Antara)

JAKARTA - The Association of Indonesian Cigarette Factory Associations (GAPPRI) assesses that the government's policy of increasing retail selling prices (HJE) by 10.5 percent and increasing VAT from 9.9 percent to 10.7 percent of cigarettes in effect since January 2025 will fertilize the circulation of illegal cigarettes.

General Chairperson of GAPPRI, Henry Najoan stated that after the increase in HJE and VAT, the price of per class of cigarettes could increase by 13.56 percent to 28.27 percent or an average increase of 19 percent.

"The increase in the percentage of the highest price will be experienced by hand-kretek cigarettes (SKT) by 28.27 percent. This means that the red carpet has been held for illegal cigarettes," he said, quoting Antara.

Henry Najoan said that the increase in HJE clearly burdened the tobacco products industry (IHT), considering that the average increase was in double digits or 10.5 percent.

In fact, SKT experienced an increase in HJE to 14.07 percent, so it has the potential to increase cigarette prices, he added, the burden is getting heavier because of the increase in VAT from 9.9 percent to 10.7 percent.

On the other hand, according to him, the increase in the provincial mininum wage (UMP) does not necessarily encourage consumer purchasing power, it can actually be even more burdensome for tobacco producers who have been burdened with various expenses.

Henry Najoan emphasized that the increase in components such as HJE, VAT, and wages will clearly raise the selling price of cigarettes, if the price of cigarettes is above the economic value, then the trend of cheap cigarettes and even illegal cigarettes will continue.

"The more consumers turn to cheap cigarettes, moreover some of them are illegal cigarettes, it will most likely make national cigarette production shrink. If this happens, we think the only advantage is that illegal cigarette sellers are not burdened by levies like legal cigarettes," he said.

Henry Najoan said, in the last 10 years domestic cigarette production has tended to decline at the level of 0.78%. Most likely the downward trend in cigarette production will continue.

He said that GAPPRI had asked the government through the Ministry of Finance (Kemenkeu), so that the tobacco products industry would receive relaxation by not increasing CHT and HJE rates throughout 2025-2027.

This is so that the tobacco products industry can recover after experiencing a contraction due to the impact of CHT and HJE above the economic value during 2020-2024, apart from the impact of the Covid-19 pandemic which has not fully recovered.

In addition, his party also sent a letter to the Minister of Finance of the Republic of Indonesia, Sri Mulyani Indrawati, asking that the cigarette VAT remain 9 percent so that the Tobacco Products Industry (IHT) can survive because it is still not stable.

"So that the regulation at PMK No 63 of 2022 concerning Value Added Tax on the Submission of Tobacco Products can be immediately harmonized with the direction of government policy conveyed by the Minister of Finance on December 31, 2024, considering that IHT is not included in the criteria for Luxury Goods," he said.