Cigarette Tax Rate Increases, Indonesian Tobacco Industry Growth Slows Down in 2024

Data on the increase in tobacco excise tariffs (CHT) and the growth of Indonesia's tobacco processing industry's gross domestic product (GDP) can be accessed at Databoks-series.katadata.co.id.

Summary:

• The Indonesian government has increased CHT tariffs nine times during the 2015-2024 period.

• During that period, the GDP of the tobacco processing industry experienced negative growth four times.

• In 2024, the GDP of this industrial sector returned to positive growth, but it slowed compared to the previous year.

The Indonesian government increased tobacco excise tariffs (CHT) or cigarette excise almost every year throughout 2015-2024, except in 2019.

In line with this policy, the gross domestic product (GDP) of the tobacco processing industry tended to slow down.

In 2017, 2020, 2021, and 2022, the GDP of this industrial sector experienced negative growth.

As for 2024, the current price GDP of the tobacco processing industry reached Rp158.72 trillion, growing by 3.49% (year-on-year).

Although it returned to positive territory, the growth rate was lower than in 2023, as shown in the graph.

The impact of the excise tariff increase on this industry was confirmed by PT Gudang Garam Tbk, one of Indonesia's largest cigarette companies.

"2024 is a challenging year, where the tobacco sector once again faces pressure due to a significant excise increase, amidst weak public purchasing power and hindered economic recovery," said Gudang Garam management in its 2024 annual report.

According to PT HM Sampoerna Tbk, another major cigarette company, the increase in excise tariffs has led many consumers to switch to illegal cigarettes.

"The majority of consumers are downtrading—choosing to make purchases at lower prices, opting for cheaper alternatives across various sectors, including retail and consumer goods," said Sampoerna management in its 2024 annual report.

"This adds to the challenges for the tobacco industry, which also has to contend with double-digit excise tax increases and a rise in illegal cigarette sales," they said.