Clear The Air News Tobacco Blog Rotating Header Image

The arguments against making cigarettes Rp 50k are ridiculous, but the gov’t will probably listen to them anyways

If you follow the Indonesian media whatsoever, you’ll know that they are totally freaking out right now about the possibility that the government could raise the taxes on cigarettes to make them cost Rp 50,000 per pack (even as netizens are making memes claiming they will are not panicking about it).

The notion that the price of cigarettes in Indonesia will more than double didn’t start with the government actually saying they would do so, or that it was even a possibility. Rather, it began with a survey of 1,000 Indonesian smokers, conducted by Universitas Indonesia’s Public Health Faculty. Among the more incredible results of the survey were that 72% said they’d quit smoking if a pack of cigarettes costs Rp 50,000 or more and that 76% agree that a tobacco tax hike and overall increase in the price of cigarettes would be a good thing.

However, there are still no actual signs the government is doing anything other than considering it as an idea that has been “communicated,” as Customs and Excise Director General Heru Prambudi put it. A few government officials have also expressed some tentative support for a tax hike, but there is certainly no concrete evidence that the government is studying it as a real possibility.

That has not stopped some pro-tobacco industry advocates from denouncing the unlikely Rp 50k cigarette scenario, with the Chairman of the Indonesian Cigarette Manufacturers Association (GAPPRI) Ismanu Soemiran even going so far as to call the rumor a deliberate hoax “made to cause commotion and economic chaos”.

While Ismanu thinks the idea would cause chaos, advocates of the tax hike say it would bring plenty of huge benefits to the country. Besides the most obvious one of getting a large percentage of smokers to quit the incredibly addictive and health hazardous habit (which is estimated to kill 217,400 Indonesians per year), the Indonesian Consumers Foundation (YLKI) notes that the steep price increase would put cigarettes out of the reach of Indonesia’s poorest, not to mention young children.

However, opponents to the idea have already issued several dire warning about the disastrous effects such a cigarette tax hike would have on Indonesia, most of them having to do with the economy. These are their arguments (and why they’re ridiculous):

It will cause a decrease in tax money overall

Opponents of the tax hike argue Indonesia is highly dependent on the huge amount of taxes they collect from cigarettes currently – in 2015, the government collected about Rp 144.6 trillion in excise taxes, of which tobacco taxation made up about 96 percent. They say that even with the increase in the tax, the resulting drop in demand will lead to a huge overall drop in tax revenue, at a time when the government desperately needs money to cover budgetary shortfalls.

If they were talking about almost any other product they might be right, but because of its addictive properties, the demand for tobacco would likely not drop proportionately with the increase in price. And because it would be such a large increase in the tax rate specifically, even if demand was decreased by about ⅔ as suggested by the survey results, tax revenue would remain about the same.

Also, consider for a moment how much money the government currently spends on healthcare for tobacco related illnesses. One study estimated that amount to be around Rp 2.9 trillion per year just for smokers, without calculating the costs of healthcare for people affected by secondhand smoke. There’s also the enormous loss in national productivity caused by smoking related diseases. It may be a longer term investment, but reducing smoking rates always ends up saving countries more money eventually.

Lastly, if you agree with the logic that the government should allow people easy access to an extremely dangerous and addictive substance because it helps them make money, congratulations, you’ve just justified the legalization and taxation of all sorts of drugs.

It will hurt poor tobacco farmersThis is the argument used not just against the the Rp 50k price but also any tobacco control measure proposed in Indonesia. It’s easily the tobacco industry’s most effective argument since it frames the issue as one of employment – a recent Tempo article mentions that 30-35 million people are employed by the tobacco industry in Indonesia (although that number comes from the National Commission to Save Kretek (KNPK) so it might not be totally accurate).

As YLKI head Tulus Abadi argued, increasing tobacco regulations have not led to corresponding layoffs in other countries. Also, if Indonesia is ever going to get serious about fighting cigarette addiction, it is going to have to start transitioning tobacco farmers into cultivating other types of crops.

In truth it may not be easy for some of those poor tobacco farmers. But let’s not forget, that many of the richest people in Indonesia are tobacco tycoons. Perhaps they can use parts of their enormous fortunes to help the farmers they rely on to find new trades.

It will increase the number of illegal cigarettes

This is probably true, but that’s a matter that government law enforcement should have to deal with, just as they deal with the spread of illegally produced alcohol. And unlike illegal alcohol, which is often toxic and lethal, illegal cigarettes probably wouldn’t contain the harmful additives that are used by large manufacturers to make their products more addictive.

At any rate, the chance of seeing such a steep excise tax increase is probably next to nil (we hope to be pleasantly surprised). However, the government is currently studying how much the next increase in cigarette taxes will be, and we hope that all of the talk currently taking place in the media makes them consider at least pushing it at least a bit farther than they would have previously.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>