Cigarette Factories Continue to Decline Due to Excise Tax Increases

The government's policy of raising cigarette excise taxes has led to a decline in the number of tobacco processing companies. The increase in tobacco excise taxes burdens small cigarette companies, causing many to go bankrupt due to their inability to afford the excise duties. Citing the need to reduce tobacco cigarette production and increase state revenue, the government plans to raise cigarette excise taxes by 10.04 percent starting early next year.

Data from the Fiscal Policy Agency of the Ministry of Finance shows that the number of cigarette factories decreased from over 4,600 in 2007 to only 713 in 2015. This number comprises 246 Machine-Made Clove Cigarettes (SKM) factories, 441 Hand-Rolled Clove Cigarettes (SKT) factories, and 26 Machine-Made White Cigarettes (SPM) factories. Similarly, the number of workers in the cigarette sector also decreased to 281,571 in 2012 from 316,991 in 2007.

Increased public awareness of the dangers of smoking, restrictions on smoking in public places, increasingly limited cigarette advertising, and the emergence of electronic cigarettes will also affect the cigarette industry. Certainly, the excise increase will again claim victims among small cigarette factories. Meanwhile, large cigarette companies such as Gudang Garam, HM Sampoerna, and Djarum can still survive due to their strong financial backing and large-scale production.