Indonesian Tobacco Products Industry Actors Ask The Government For Certainty Of Fate

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JAKARTA - Approaching the first quarter of 2020, tobacco product industry players are preparing to calculate the impact of the 23 percent increase in Tobacco Excise Excise (CHT) and 35 percent Retail Selling Price (HJE).

The Association of Cigarette Manufacturers (GAPERO) indicated that the negative impact on the decline in income is almost certain to occur, although there is no official calculation yet.

"When viewed from the trend in the last three years, the increase in excise tax of 10 percent has resulted in a decrease of 1-2 percent," said GAPERO Chairman Sulami Bahar in a statement received by VOI , Wednesday, February 19.

The increase in excise rates that have changed every year since Jokowi's leadership has often caused confusion for industry players, one of which is the difficulty of entrepreneurs in projecting their business in the long term.

"The investment in cigarettes is not an arbitrary investment, it has a large value, but the conditions in the field have many restrictions," added Sulami.

According to GAPERO, the Tobacco Products Industry (IHT) is often under the spotlight from various sectors. The pros and cons of this business have resulted in a lot of excessive rules which then burden the space for movement of IHT players, ranging from distribution regulations, issues of packaging restrictions, to the most recent, an increase in excise rates and the selling price per stem.

This then raises the question, is industry still considered strategic by the state? GAPERO questioned this based on his astonishment at seeing the trend of policies that continue to punish the producer side, instead of distributing control to all parties.

"We are aware that this cigarette product has risks, therefore we are very supportive of educational and socialization efforts so that this product is consumed wisely by adults. It is appropriate that this is a shared responsibility which all parties must take control. This very pressing policy makes us wonder whether IHT is still considered strategic or not. If so, please give them fair treatment, "said Sulami.

The increase in average excise rates, which reached a level of up to 35 percent in early 2020, has a direct impact on the increase in the price of cigarette products by a number of companies. As a result, a number of manufacturers are likely to re-project their sales targets.

Although there is no official calculation of the reduction in economic impact, Sulami also said that his party had conducted a small research at the beginning of the year on small manufacturers in Central and East Java. According to him, many small-scale manufacturers are starting to close down.

In succession, the industry legally operating in Indonesia has significantly shrunk the number of its manufacturers. Based on data from the Director General of Customs and Excise, the number of cigarette factories has continued to decrease since 2011.

In 2011 there were 1,540 factories, in 2012 there were 1,000 factories, in 2013 there were 800 factories, in 2014 there were 700 factories, in 2015 there were 600 factories, in 2016 and 2017 there were 487 cigarette factories.

The reduction in the number of manufacturers above also has an impact on reducing the uptake of tobacco commodities. The Head of the Sub-Directorate for Seasonal Crops and Spices at the Ministry of Agriculture, Haris Darmawan, in a discussion on Partnership Patterns in Tobacco Agriculture some time ago said that IHT also reduces cigarette production so that it affects the tobacco produced by farmers.

He explained that since the issue of cigarette excise arose last year, the selling price of tobacco at the farm level has tended to fall. The tobacco industry has taken root and has even become the backbone of life for many Indonesians.

Among the examples are tobacco farmers in West Nusa Tenggara Province which is known as the best Virginia tobacco commodity producing region. Of the approximately 40 thousand tons of domestic Virgina tobacco production for national needs, it is estimated that 80 percent comes from tobacco farming in Lombok.

This makes tobacco a source of livelihood for the surrounding community. According to agricultural observers from the Faculty of Agriculture, University of Mataram Prof. H. Tajidan, this commodity has even become a mainstay for farmers to improve their quality of life. Tobacco farming is a labor and capital intensive enterprise that can eventually turn on many financial institutions at the rural level.

"In 2019, the number of tobacco farmers and povers is estimated at 20 thousand people, and the workforce absorption is around 156 thousand people. Tobacco plantations in Lombok not only open up job opportunities in the garden area, but also open up other job opportunities such as non-agricultural business fields, such as trade, transportation services, "he said.

With the significant role of the tobacco industry, entrepreneurs in the tobacco industry, especially those covered by GAPERO, have raised their voices to emphasize the need for protection. GAPERO firmly states that this industry has contributed a lot to both the state and society.

"IHT is the second largest contributor to state revenue, therefore there must be protection, not punishment. Second, if we look at the condition of farmers in tobacco-producing centers such as Temanggung and Kediri, many of them have decent livelihoods, such as owning cars, houses, and even going on the pilgrimage. All from IHT, it would be very unfortunate if this industry was continuously eroded by policy uncertainty, "he said.

The government has raised cigarette excise rates above 70 percent in the five years since 2015. Consecutively, cigarette excise rates have increased by 8.72 percent in 2015. Furthermore, in 2016, cigarette excise taxes increased by 11.19 percent and respectively, the excise tax for these tobacco products increased in 2017, 2018 and 2019 by 10.54 percent, 10.04 percent, and 10.04 percent respectively.

Together with efforts to obtain protection, GAPERO also emphasizes the need for regulatory certainty in the future. In his statement, Sulami also asked the government to look at the situation fairly and side with smaller entrepreneurs, including all IHT actors in it.

"Apart from that, we also ask that the excise tariff simplification policy be discontinued, and it is best to provide space for related associations to sit together to find the best solution. The current regulations have put a lot of pressure on business actors, the impact is already being felt. Don't keep this industry castrated if it is still considered strategic, ”concluded Sulami.