Jakarta. Indonesia loses Rp 97 trillion or approximately $6.1 billion annually from illicit cigarette consumption as smokers look for cheaper alternatives, far surpassing the government estimates, according to research body Indodata.

More and more Indonesians are switching to illicit cigarettes as tobacco products become more expensive as the government keeps increasing its excise tariffs. Over the past years, Indodata has been doing surveys on illicit cigarette consumption, and the potential state loss that emerged from this untaxed commodity.

In the 2021 Indodata survey, about 28 percent of the respondents admitted to smoking illegally distributed cigarettes. The survey showed that the daily consumption could reach 7,701 illicit tobacco sticks. Estimates also show that its consumption could cause Indonesia to lose nearly Rp 53.2 trillion that year. As illicit cigarette consumption grows, so does the revenue loss.

“When excise increases, people are shifting to illicit cigarettes as their purchasing power weakens,” Indodata’s executive director Danis Wahidin told a forum hosted by B-Universe Media Holdings in PIK2 on Thursday.

“Our 2024 survey reveals that illicit cigarette consumption has soared to 46 percent. … This can cause a Rp 97 trillion state revenue loss. … This is something that the government has to pay attention to. Just because they are missing the excise target from tobacco taxes, it does not really mean the smoker population is decreasing,” Danis said.

Indodata’s estimates on the potential state loss from illicit cigarette consumption are also higher than those revealed by the government. Merrijanti Punguan, a senior official at the Industry Ministry, told the same forum that the unpaid taxes on illegal cigarette sales could cost the country around Rp 15 trillion.

According to the Indonesian Cigarette Manufacturers Association (Garki), the excise tariffs on tobacco products keep going up each year. In 2020, the previous Joko “Jokowi” Widodo government slapped 23 percent additional tariffs, and another 12.5 percent the following year. Excise on tobacco products increased 12 percent in 2022 and rose 10 percent the next year. Indonesia did not raise tobacco prices in 2019 during which the country held a presidential election that granted Jokowi his second term. In 2023, Indonesia earned Rp 213.5 trillion from cigarette excise, meaning that the government only achieved 91.8 percent of what it had targeted that year. 

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