Hesitant Crackdown on Illegal Cigarettes

The Indonesian government struggles to address illegal cigarettes due to its inconsistent approach. While scientific evidence shows cigarettes cause diseases and burden the health care system, the government has not taken steps to restrict their production or consumption, fearing a loss in revenue and job cuts. The Ministry of Manpower estimates that 6 million people are employed in the industry, with factory workers comprising 540,000 of these jobs.

Despite annual excise tax hikes, increased illegal cigarette raids, and public health campaigns, the industry has only shrunk by 3.9% in a decade, while the number of smokers has increased by 13.5%. The number of smokers has risen from 62 million to 75 million, and health costs for treating diseases have doubled to Rp35 trillion, or 30% of BPJS Kesehatan's annual claims.

The cigarette industry also contributes to pollution, releasing around 100,000 tons of cigarette butts into the environment each year. A health-focused perspective suggests higher cigarette prices, which could reduce consumption, increase revenue, and decrease health and environmental costs. European and Asian countries have managed to lower smoking rates through high uniform excise rates.

However, Indonesia's excise tax is among the lowest at 60% of the retail price, below the WHO recommendation of 75%. Illegal cigarettes, which evade excise payments and are sold without excise stamps, further complicate the issue. The House of Representatives Finance Commission Chair is suspected of involvement in the sale of counterfeit excise stamps.

Ahead of the 2024 election, businessman Hashim Djojohadikusumo, President Prabowo Subianto's brother, met with an alleged illegal cigarette producer in Madura, East Java, who is under investigation by the Corruption Eradication Commission. Despite massive enforcement efforts, only small illegal factories have been targeted, leaving larger operations untouched.

Finance Minister Purbaya Yudhi Sadewa aims to integrate illegal cigarette businesses into the fiscal system with a lower excise rate, but this would not significantly boost state revenue. Ultimately, imposing high excise rates would address multiple issues, including state revenue, smoking rates, and health costs, prioritizing public interests in health, economy, and the environment.