Jakarta. The Institute for Development of Economics and Finance (Indef) compares the challenge of eradicating illegal cigarettes in Indonesia to the battle against narcotics in Latin America, citing deep-rooted power dynamics and structural challenges that make the issue difficult to resolve.

Andry Satrio Nugroho, Head of the Industry, Trade, and Investment Center at Indef, said illegal cigarettes thrive due to protection from certain law enforcement officials, complicating efforts to tackle the problem.

“Fighting illegal cigarettes is like how Latin American governments struggle with narcotics, as many illegal cigarette operations have support from 'law enforcement,'” said Andry during a Focus Group Discussion (FGD) at the Jakarta Globe's office at PIK 2, Tangerang, Banten, on Thursday.

A clear mandate from President Prabowo Subianto is essential to tackle the illegal cigarette trade, Andry said. He stressed that the effort should involve coordinated action across multiple ministries, rather than relying solely on the Finance Ministry and the Industry Ministry.

“We must take every step to address this issue, as illegal cigarettes are a significant leak in state revenue. A clear directive from the President is necessary; otherwise, ministries will continue to act alone,” he said.

Andry warned that the illegal cigarette trade has grown into a vast, systematic network that threatens the future of Indonesia’s legal cigarette industry. He expressed concern that without decisive action, legal producers could be driven out and eventually turn to illegal production.

“The ecosystem is large, systematic, and well-supported from various sides. We risk seeing legal producers pushed out and joining the illegal cigarette trade,” he concluded.

Indonesia is losing Rp 97 trillion (approximately $6.1 billion) annually due to illicit cigarette consumption, as smokers increasingly turn to cheaper alternatives. This figure far exceeds the government's estimates, according to research body Indodata.

As tobacco products become more expensive with the government's continuous hikes in excise tariffs, more Indonesians are shifting to illicit cigarettes. Indodata has been conducting surveys over the past few years to measure the scope of illicit cigarette consumption and the potential state revenue loss resulting from this untaxed commodity.

In a 2021 survey, about 28 percent of respondents admitted to smoking illegally distributed cigarettes. The survey found that daily consumption could reach 7,701 illicit tobacco sticks, leading to an estimated revenue loss of nearly Rp 53.2 trillion for that year. As the consumption of illicit cigarettes grows, so too does the loss of state revenue.