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December 11, 2008

Indonesia: Additional 7% tax slapped on cigarette firms
As Indonesian government seeks to curb smoking in one of the world’s largest tobacco markets, cigarette firms will have to pay an additional 7 percent excise tax next year, Reuters quoted the finance ministry as saying Wednesday.

A new ministerial decree, which will come into effect on Feb 1, 2009, will adjust the retail price range for cigarettes and increase tax costs by an average of 7 percent.

"The increase will vary, depending on the previous retail sales price," the ministry said in a document accompanying the decree, adding the policy was a gradual step towards simplifying the excise scheme.

The $8 billion tobacco industry in Indonesia plays an important economic role, with tax on cigarettes accounting for about 10 percent of government income in the past, while the sector provides millions of jobs.

Under the existing excise scheme, the government uses a combination of tariffs, linked to factors such as production volume, retail price, cigarette type and the cigarette-making process.

The government currently imposes an excise rate of about 40 percent from the maximum cigarette excise tax to 57 percent.

Indonesia aims to lower cigarette production growth to 5 percent in 2009 from about 7 percent growth this year. It expects production to decrease to 240 billion cigarettes next year from an estimated 247 billion cigarettes this year.

Indonesia is the world's fifth-largest tobacco market and cigarettes are among the cheapest in the world, priced at around $1 a pack.

Top Indonesian cigarette makers include Gudang Garam and Handaya Mandala Sampoerna, which are among the biggest firms on the stock exchange.

The country is targeting excise tax revenue in 2009 of 48.2 trillion rupiah ($4.42 billion), an increase of 2.7 trillion rupiah compared to the revised 2008 state budget.

Despite its reluctance to sign the Framework Convention on Tobacco Control (FCTC), Indonesia has a road map to support the convention and aims to limit cigarette output to 260 billion cigarettes by 2020.

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