Jakarta. Indonesia’s tobacco excise revenue reached Rp 176.5 trillion ($10.6 billion) as of October, or 76.7 percent of the 2025 state budget target, driven partly by policy changes rather than stronger cigarette consumption, officials told lawmakers on Monday.

Director General of Customs and Excise Djaka Budhi Utama said the January–October revenue grew 5.7 percent from a year earlier. But he warned the increase does not reflect higher smoking rates, as national cigarette production is declining.

National cigarette output stood at 258.4 billion sticks through October, down 2.8 percent from 265.9 billion a year earlier, Finance Ministry data showed. The drop was concentrated in tier-one cigarettes, whose production fell 9.4 percent to 125.7 billion sticks. By contrast, lower-tier brands saw output rise: tier-two production grew 3.2 percent to 76.5 billion sticks, while tier-three output rose 6 percent to 56.2 billion.

"The shift signals continued downtrading as consumers opt for cheaper cigarettes," Djaka told the House of Representatives’ Commission XI.

The trend persists despite the government’s seizure of 954 million illegal cigarettes this year, a 41 percent increase in enforcement actions.

Djaka said the rise in excise revenue was largely the result of changes to the payment schedule for excise tax stamps. Manufacturers had a three-month window to settle payments in 2024, which was shortened back to two months in 2025. Without this policy shift, tobacco excise revenue would have declined. “If the policy on delayed stamp payments is excluded, tobacco excise revenue would contract by 2.3 percent, in line with the 2.8 percent decline in production,” Djaka said.

Demand for Cheap Cigarettes Fuels Illegal Trade

Despite the government’s excise increases and anti-smoking campaigns, demand for low-cost illegal cigarettes remains strong, especially among lower-income smokers.

“People are already fed up with high cigarette prices. What matters is that their mouths produce smoke. They no longer care about brands or price,” Djaka said.

He added that deep-rooted smoking habits in Indonesia also blunt the impact of public health campaigns. “As long as the smoking culture continues to grow, people will keep smoking even though there are campaigns saying cigarettes kill.”

The Customs office estimates that illegal cigarettes account for 7–10 percent of the total market, far above the quantities seized.

Excise tariff disparities across cigarette tiers further encourage producers and traders to circumvent the system, allowing untaxed products to enter the market.

Djaka said increasing the effectiveness of the Tobacco Excise Revenue Sharing Fund (DBH CHT) is key to curbing illegal cigarette circulation and reducing smoking rates. The fund supports joint enforcement operations with the military, police, prosecutors, and local governments.

He urged a more comprehensive approach, combining better policy alignment with stronger field monitoring. “We need to optimize the DBH CHT for public health interventions,” he said.

Djaka warned that illegal cigarette control will remain challenging as long as the demand for cheap tobacco products stays high and smoking remains culturally ingrained across communities.

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