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Tax Gap of Heated Tobacco Products in Indonesia

The Republic of Indonesia amended the Excise Tax Law to include new tobacco products, including heated tobacco and e-liquids used with electronic cigarettes, in 2017. The regulation became effective on July 1, 2018 (Regulation No. 146/PMK.010/2017). Taxable new tobacco products are defined as “Other Tobacco Processed Product, hereinafter referred to as HPTL, [which] means tobacco product is made from other tobacco leaves mentioned in number 4 to 13, uses other manufacturing method in line with the technological development and consumer demand, with any substitute or additional material in its production” (Chapter 3, Art.14). The excise rate for HTPL products was a pure ad-valorem tax set as 57% of the retail selling price proposed by the tobacco product manufacturer or importer (also called “banderole price”). The “declared banderole price” is reported by tobacco companies to the Customs Bureau. This tax is also the minimum excise tax payable on conventional cigarettes.

Conventional cigarettes are subject to a complex, tiered specific excise tax system. The system applies different taxes to different types of cigarettes: machine-made white cigarettes (SPM), machine-made clove cigarettes (SKM), and hand-made clove cigarettes (SKT). For each of these types, the amount of taxation also varies based on annual production and “declared banderole prices.” As of October 2020, the system included 10 price tiers. Most international brands (including Marlboro) are white cigarettes (SPM) and fall in the first price tier.   

The excise tax rates for SPM cigarettes in Tier I are:

  • From February 1, 2020: IDR 790 per stick (Regulation No. 152/PMK.010/2019) 
  • From February 1, 2021: IDR 935 per stick (Regulation No. 198/PMK.010/2020)

The tax system for conventional cigarettes also includes a maximum excise rate, which consists of an ad-valorem tax rate of 57% based on the Harga Jual Ecera, or HJE (Law No 39 of 2007, Art. 5). The HJE is the government’s retail sales prices and is announced by the Ministry of Finance. Since February 1, 2020, the HJE for SPM cigarettes in Tier I has been IDR 1,790 per stick. It was not changed in 2021. 

Sources

Ministry of Finance Regulations (PMK):

Last Updated Mar. 1, 2021