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Indonesia’s Ministry of Finance announces a 12% increase in tobacco excise tax and prices for 2022

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On 13 December, the Ministry of Finance Indonesia announced that both tobacco excise tax and minimum retail prices will increase by an average of 12%, effective 1 January 2022. The excise tax increase will be highest for machine-rolled cigarettes (up to 14.4 %), while hand-rolled cigarette increases will be capped at 4.5 percent. At the same time, MOF also announced the simplification of Indonesia’s complex excise tax structure, from 10 tiers to eight by merging machine-rolled kreteks cigarettes (SKM) IIA to IIB and machine-rolled white cigarettes (SPM) IIA to IIB.  

The announcement also provides important flexibility to the subnational governments, enabling them to earmark the tobacco tax (Tobacco Excise Revenue Sharing Fund/ DBHCHT) for health programs, including Covid-19. The previous guidance allowed just 25% of the tax to be used for health programs, but governments can now increase this allocation to meet their most pressing needs.

Tariff increases are expected to produce three important results: significantly decrease tobacco production, from 320 billion to 310 billion cigarettes annually; raise the price index from 12.7% to 13.78%; and cut the child smoking prevalence, from 8.97% to 8.83%, bringing Indonesia closer to the National Mid-Term Development Plan 2020-2024 target of 8.7%. The tobacco excise revenue is also expected to meet the 2022 budget of Rp193.53 trillion.

“Increasing tobacco taxes and prices can reduce smoking prevalence and attributable morbidity and mortality”, said Dr Tara Singh Bam, Director, The Union Asia Pacific. “They are absolutely integral to lowering Indonesia’s adult and youth smoking prevalence.”   

While tax and price increases are important steps, it’s important to note that Indonesia’s tobacco epidemic is fuelled by an abundance of cheap cigarettes. The most expensive cigarettes cost 3.77 times more than the cheapest cigarettes sold in Indonesia; consumers can always switch to cheaper cigarettes.

 “The 12% increase in cigarette tax and retail price is remarkable,” said Dr Abdillah Ahsan, University of Indonesia.  “The decision improves the public health, increases government revenues, and contributes to sustainable development. As critical next steps, the government must now decrease the price gap between the highest and lowest cigarette products and increase taxes significantly”

The Union has worked closely with Indonesia’s Ministry of Health, the Ministry of National Planning and Development, and the Ministry of Finance to increase awareness regarding the benefits of tobacco taxation and tax tier simplification. Policy advocacy is conducted in partnership with civil society, universities, media, youth networks, and farmers networks. The Union has also been provided extensive technical and strategic guidance to develop and implement the National Mid-Term Development Plan 2020-2024.