Updated May 2013
Impact on Revenue
Government revenue from tobacco tax 2005 – 2011 (figures in USD)*
Most popular local brand is A Mild at 1.50 USD per pack
Most popular foreign brand is Marlboro costs 1.29 USD per pack
A comparison of nominal and real tobacco prices in Indonesia from 1970-2005 showed that while nominal tobacco have increased, their real prices have remained relatively unchanged.
Cigarette affordability is determined by the interaction of consumers’ income levels, which have been growing steadily from year to year, and cigarette nominal prices, which have remained relatively stable since 2003. As a result, cigarettes have become more affordable over the past several years.
Increasing affordability of cigarettes based on relative income price (RIP)*, 2000-2010
*Relative Income Price = percentage of per capita GDP required to purchase 100 packs of cigarettes
Tax Impact Scenario
While the Indonesian government has increased excise taxes on cigarettes from 38% to 44%, and then from 44% to 46%, this level is still below the maximum allowed by the country’s national tax law. Four step-by-step excise tax increase scenarios, representing the actual and potential rates levied in Indonesia (38% to 44%, 44% to 46%, 46% to 50%, 50% to 57%) were run through van Walbeek’s tax impact simulation model.
The simulation model indicates that all of the scenarios result in significant increases (20 to 34%) in excise revenue for the government, except for Scenario 2, where the small 2% increase in excise tax resulted, as expected, in the smallest (11.9%) increase in tax revenues. From a public health perspective, a few hundred thousand Indonesian lives were saved with each tax increase; although Scenario 2, having the smallest rate increase, also resulted in the fewest lives saved. Additionally, in spite of the reduced smoking prevalence and cigarette consumption, none of the simulated tax increases had any significant impact on industry revenue; even when industry revenue was negative, the percentage change was only -1.8%, a negative cost that the industry might easily afford to absorb (industry still earns over USD 7.2 billion) or offset through even a small increase in retail prices.
Around 61.4 million Indonesians were estimated to be smokers in 2011. Men dominate prevalence trends, but there has also been an increase in the number of female smokers especially in recent years. In 2011, total prevalence rate reached around 36.1%.