The Ministry of Trade (Kemendag) will impose high excise duties on e-cigarettes. This policy was enacted as a response to protect the tobacco industry, which is related to the affairs of many people in Indonesia.

Applied cigarette and e-cigarette tax

The increase in excise rates on cigarettes was actually triggered by the government's decision to increase cigarette excise rates. Currently, the cigarette tax rate is set at 10% for 2023-2024.

Previously in 2022, Sri Mulyani, Minister of Finance (Menkeu) through Minister of Finance Regulation (PMK) No. 192/PMK.010/2021 concerning Excise on Tobacco Products in the Form of Cigarettes, Cigars, Leaf Cigarettes or Klobot, and Sliced Tobacco, the regulation on cigarette excise was increased by an average of 12%, effective from January 2022.

On the other hand, the government has also raised the Value Added Tax (VAT) rate on the delivery of tobacco products to 9.9% from the previous 9.1%. This provision is stated in the PMK Number 63/PMK.03/2022.

The government has increased the VAT rate on tobacco products for the third time since 2015, namely 8.4%t (2015); 8.7% (2016); and 9.1% (2017). According to PMK Number 63 of 2022, the VAT rate can be increased to 10.7% maximum in early 2025.

One aspect that has become a major factor for the government in increasing excise duty is to reduce the prevalence of child and adult smokers and to control cigarette production and consumption.

"So that the affordability of cigarettes will also decrease. It is hoped that consumption will decrease," explained Sri Mulyani.

"Secondly, considering that cigarette consumption is the second largest consumption of poor households, reaching 12.21% for the urban poor and 11.63% for rural communities," she added.

Therefore, starting on January 1, 2023, the cigarette excise price is set based on PMK No. 191 of 2022, starting at IDR 55 to IDR 5,000.

Meanwhile, on the other hand, when compared to ordinary cigarettes, e-cigarette excise and duty also increased in 2023 pursuant to PMK No. 192 of 2022. Provisions regarding limits on retail selling prices and excise tariffs per unit of domestic and imported tobacco products shall come into effect from 1 January 2023 to 31 December 2023.

The increase in tobacco product excise rates (CHT) includes e-cigarettes in the form of solid, open systems, closed systems, and other tobacco processing products. The increase in CHT will be adjusted to each of these groups.

Excise duty for solid e-cigarettes is as low as IDR 5,527/g with an excise rate of IDR 2,886/g. The lowest open system liquid e-cigarette is IDR 938/mm with a rate of IDR 532/mm. Meanwhile, closed system liquid e-cigarettes are as low as IDR 37,365 per cartridge at a rate of IDR 6,392/mm.

Based on PMK No. 63 of 2022, the tax amount for electric cigarettes is 9.9% VAT. In addition, starting July 1, 2018 the Directorate General of Customs and Excise (Dirjen Customs) has levied an excise rate for other tobacco processing products (HPTL) for e-cigarette liquid by 57% according to PMK 146/PMK.010/2017 concerning Excise Tariffs for Tobacco Products.

The government receives complaints from cigarette businesses and tobacco farmers

The Ministry of Trade had received a number of complaints from a number of cigarette farmers and entrepreneurs regarding the current tobacco and cigarette business climate.

Cigarette companies complain about the decline in turnover and production due to several reasons, including the development of e-cigarettes and high production costs.

Meanwhile, complaints from farmers who depend a lot on the tobacco cigarette business, while tobacco cigarette companies are already subject to high taxes, actually harm farmers as well.

The farmers complain about the high cost of production and being entangled in the debts of loan sharks. On the other hand, farmers also complain about the low price of tobacco. Farmers asked tobacco companies to raise tobacco prices as a result of low tobacco prices.

“Farmers have great hopes that the Trade Minister can fight for the price of tobacco. So that farmers can feel the benefits, “said the tobacco farmer.

Currently, the price of tobacco for example ranges from IDR 30,000 to IDR 50,000. Consequently, it cannot cover the cost, especially because the cost of land rent is high.

"The price per grade is IDR 30,000, so the price for tobacco is IDR 50,000 to IDR 120,000. Thus, farmers can feel the benefits, “the farmer added.

Ministry responds to businesses and farmers complaints

Zulkifli Hasan provides a solution by imposing higher taxes on e-cigarette products compared to tobacco cigarettes. This is because the tobacco cigarette industry covers the livelihoods of many people.

“Don't let cigarette factories be taxed a lot, because there are a lot of workers. [Meanwhile, e-cigarettes factory] have few workers, they don't pay taxes, for example. So, this is input for the government, we will study it," he said.

In addition, responding to the problems faced by farmers. Zulkifli immediately sought local governments to provide people's business credit.

Meanwhile, the Ministry promised to facilitate tobacco farmers with cigarette companies so as to break the tobacco distribution chain, so that farmers get higher prices.