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Increase in Excise and VAT Rates on Cigarettes
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Finance Minister Sri Mulyani Indrawati has set the Value Added Tax (VAT) rate for tobacco products at 9.1 percent this year. This rate is higher than the 8.7 percent rate in 2016 and the 8.4 percent rate in 2015. This rate is stipulated in Minister of Finance Regulation Number 207 of 2016 concerning the Procedures for Calculating and Collecting Value Added Tax on the Delivery of Tobacco Products. Tobacco products in this context include cigarettes, cigars, kretek (clove cigarettes), cut tobacco, and other processed tobacco products.
In addition to the VAT on tobacco products, the government previously also decided to increase the average excise tax rate on cigarettes by 10.5 percent through Minister of Finance Regulation No. 147/2016, effective January 1, 2017. This increase is based on several considerations, namely health, labor, tobacco farmers, the circulation of illegal cigarettes, and state revenue. However, this increase is lower than the previous year's increase of 11.2 percent.
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