Tobacco tax was named as one of the largest contributors to Indonesia’s economy when it accounted for 96.4 percent of the customs and excises target in 2015. In other words, Indonesia makes a boatload of cash from people and companies bringing tobacco in and out of the country.
This year, however, the excise deposit in the first quarter decreased by 12.7 percent compared to the same time last year.
Despite this fact, the Indonesian government still relies on tobacco excise for the country’s revenue target this year. With this in mind, Indonesia’s Minister of Finance Sri Mulyani Indrawati decided to simplify the tax and customs policy in 2017.
In 2015, the country received Rp.139.5 trillion (US$10.4 billion) out of Rp144.6 trillion (US$10.8 billion) of the country’s tax collection target for tobacco excise. According to the Ministry of Industry, taxes collected from tobacco have hit a steady increase in recent years.
Similarly, in 2016, the tobacco excise contributed Rp.138.7 (US$10.4 billion), or approximately 96.7 percent of the total national customs income.
Unfortunately, although the state’s tax income target has increased to Rp.157.2 trillion (US$11.8 billion) this year for customs and excises, the total revenue from the tobacco was stuck at Rp.6.41 trillion (US$481 million) in the first three months of 2017.
Indrawati believes that non-compliance could be the main factor that has lowered the level of state revenue. Because of this, the government is now working to remodel tax policies and simplify them to increase state revenue.
Member of Commission XI of the House of Representatives Eva Kusuma Sundari explained that the current tax structure in Indonesia does not benefit businessmen.
“Tobacco companies are treated unfairly because of the multiple layers of tax that overlap and are a burden. Therefore, businessmen in this industry are disadvantaged,” said Sundari.
Goro Ekanto, head of state revenue policy at the Fiscal Policy Institution said that the Finance Ministry has 12 tax tiers in the tobacco excise structure. The new policies from Indrawati should reduce them down to nine.
Indrawati mentioned that the current tax code also drives a black market of illegal tobacco products and distribution in Indonesia. In April of 2017, tax officers successfully confiscated illegal tobacco worth Rp.2.6 billion (US$197,000) in multiple locations in Makassar.
But this is not the only case regarding illegal tobacco in Indonesia. During 2016, there were reportedly 1,597 cases related to illegal tobacco in the archipelago.
“In this case, we asked customs to focus on tackling illegal cigarettes because the tax rate is quite high. The current rate and policies also give opportunities for illegal cigarette producers,” explained the minister in January of 2017.