Tobacco Production Decreases as Tobacco Excise Tax Increases

Tobacco excise tax (CHT) rates have increased almost every year since at least 2009, causing cigarette prices to steadily rise.

In 2023-2024, the Ministry of Finance (Kemenkeu) also increased the average CHT rate by 10% per year, aiming to reduce smoking prevalence.

This excise tax increase coincided with a decrease in cigarette production.

According to data from the Directorate General of Financing and Risk Management (DJPPR) of the Kemenkeu, in 2023, national cigarette production reached 318.15 billion sticks, down 1.8% from the previous year.

Cigarette production in 2023 also reached its lowest level in the last decade, as shown in the graph.

This also impacted the decrease in state revenue from CHT. According to a report by the Supreme Audit Agency (BPK), CHT revenue realization in 2023 reached Rp210.29 trillion, down 3.81% compared to 2022.

Despite the reduction in cigarette production, Akbar Harfianto, Kasubdit of Excise Tariffs at the Directorate General of Customs and Excise, believes the decrease in the number of smokers is not yet significant.

"Although there has been a decrease in cigarette production growth over the past five years by an average of -1%, Indonesia still faces a major challenge in suppressing smoking prevalence," said Akbar in *Info Risiko Fiskal Edisi I/Tahun 2024*.

"Especially because of the prevalence of cheap and illegal cigarettes that make it easier for the poor and young people to access consumption," he continued.

According to Akbar, the current CHT tariff policy has successfully suppressed cigarette production from large factories. However, on the other hand, there has been an increase in the production of cheap cigarettes from small factories.

"This high cigarette consumption not only has a negative impact on public health but also causes significant economic losses, both for individuals and the country," said Akbar.