Increased Excise Taxes Hamper Growth of the Tobacco Processing Industry

The Central Statistics Agency (BPS) reports that the Gross Domestic Product (GDP) of the tobacco processing industry at current prices reached Rp 135.75 trillion in 2022.

This value constitutes 4.21% of the total GDP of the non-oil and gas processing industry. It also contributed 0.96% to the total national GDP, which reached Rp 19.59 quadrillion.

Based on constant 2010 prices, the GDP of the tobacco processing industry contracted by 2.34% to Rp 82.17 trillion last year compared to the previous year. This is the third consecutive contraction.

Government policies that repeatedly increased tobacco excise taxes have pressured the national tobacco processing industry. Over the past decade, the tobacco processing industry has recorded negative growth five times, as shown in the graph.

In 2020, a 23% increase in cigarette excise taxes caused the cigarette industry to contract by 5.78%. Similarly, in 2021, a 12.5% increase in tobacco excise taxes resulted in another negative growth of 1.32% for the tobacco processing industry.

In 2022, cigarette excise taxes increased by 12%, again impacting the tobacco processing industry, which experienced a 2.34% contraction.

The contraction in the tobacco processing industry was also triggered by the increasing number of tobacco smokers switching to electronic cigarettes (vapes).

Tobacco excise duties (CHT) are a major source of government revenue. Based on data from the Directorate General of Customs and Excise of the Ministry of Finance, CHT revenue in 2022 reached Rp 218.62 trillion.

This figure reached 104% of the previous year's target of Rp 209.91 trillion. CHT revenue last year grew by 15.8% from the previous year's Rp 188.81 trillion.