Indonesia Expat - - Featured - BY ERIN COOK

Sin Tax Says 'Put Down the Smokes'

Like much of the world, smok­ing con­tin­ues to be one of In­done­sia’s top pub­lic health pri­or­i­ties. But, with the cheap­est cig­a­rette prices on earth as well as a huge cig­a­rette pro­duc­tion and ex­port in­dus­try, tech­niques which have curbed smok­ing in other coun­tries must be tai­lored to In­done­sia’s spe­cific needs. Like­wise, laws and reg­u­la­tions which have been passed but are not com­pletely en­forced, such as a ban on smok­ing in­side malls and shop­ping cen­tres, must be re­ex­am­ined for max­i­mum util­ity.

In­done­sian pol­i­cy­mak­ers, how­ever, have in­tro­duced one reg­u­la­tion which has proved suc­cess­ful around the world – the so- called ‘sin tax.’ A sin tax is ap­plied to goods which are con­sid­ered harm­ful to in­di­vid­u­als, with the dual ben­e­fit of be­ing a fi­nan­cial dis­in­cen­tive and fund­ing pub­lic health costs borne by the be­hav­iour.

A sin tax on cig­a­rettes and tobacco prod­ucts in In­done­sia comes in the form of the cig­a­rette ex­cise, which is hotly dis­puted by con­sumers and pro­duc­ers alike.

Last year, Fi­nance Min­is­ter Sri Mulyani In­drawati over­saw an 11.3 per­cent hike in taxes on cig­a­rettes and an­nounced a fur­ther 10.5 per­cent over 2017.

“Cig­a­rettes are a com­mod­ity that can harm the health of the peo­ple, so their dis­tri­bu­tion needs to be lim­ited. Ex­cise taxes are a way to limit that,” she said, as re­ported by Reuters in September 2016.

This fol­lows the in­tro­duc­tion of vis­ual warn­ings on cig­a­rette pack­ets in­tro­duced by the Susilo Bam­bang Yud­hoy­ono gov­ern­ment in 2009 and fully im­ple­mented in 2014. While the vis­ual warn­ings have proven pro­duc­tive in de­creas­ing the amount of peo­ple tak­ing up the habit, they do lit­tle to dis­suade cur­rent users.

“To kill off the smok­ing habit in a more ef­fec­tive way, the gov­ern­ment will have to in­crease the price of a pack of cig­a­rettes and also the ex­cise on cig­a­rettes.”

“Hav­ing health warn­ings on cig­a­rette pack­ets helps pre­vent ado­les­cents and new smok­ers,” Univer­sity of In­done­sia De­mo­graphic In­sti­tute re­searcher Ab­dil­lah Ah­san told the Jakarta Globe when the law came into full ef­fect.

“To kill off the smok­ing habit in a more ef­fec­tive way, the gov­ern­ment will have to in­crease the price of a pack of cig­a­rettes and also the ex­cise on cig­a­rettes,” he pre­dicted.

He could soon be proved cor­rect, with In­done­sia In­vest­ments re­port­ing in September that the coun­try’s largest pro­duc­ers are see­ing de­clines in sales. HM Sam­po­erna, the coun­try’s top pro­ducer, dropped 1.5 per­cent, or Rp.46.6 tril­lion (US$3.4 bil­lion), in the first half of 2017 com­pared to the same pe­riod a year ear­lier. Wis­mi­lak Inti Mak­mur dropped a mas­sive 15.7 per­cent, or Rp.760.7 bil­lion (US$57 mil­lion) year on year from Jan­uary to July this year

Mean­while, In­done­sia In­vest­ments notes the ef­fect the ex­cise has had on iconic cig­a­rette brand Gu­dang Garam.

“The higher ex­cise tax has a big im­pact on the cor­po­rate earn­ings of Gu­dang Garam be­cause taxes and ex­cises ac­count for about 75 per­cent of the com­pany’s to­tal ex­penses,” the re­port pub­lished on­line on September 5 said.

Data on the im­pact the ex­cise has had on ex­ist­ing smok­ers in In­done­sia is yet to be re­leased with the sin tax still a fairly new phe­nom­e­non.

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