Impact of Delaying Tobacco Excise Tax Increases in Indonesia
Indonesia's decision to delay tobacco excise tax increases until 2027 threatens public health, with smoking-related economic losses estimated at up to Rp410 trillion. Experts urge for higher taxes to reduce consumption and fund the country's healthcare system effectively.
Highlights
- •The Indonesian government has deferred tobacco excise tax hikes until 2027 while planning to add new tax tiers with lower rates.
- •Smoking-related economic and health losses in Indonesia are estimated to reach between Rp184 trillion and Rp410 trillion.
- •International models like the Philippines and Finland show that high, consistent excise taxes effectively reduce smoking rates and fund healthcare.
- •Experts recommend a 25% annual excise increase to prevent millions of deaths and generate significant additional state revenue.
The decision to delay tobacco excise tax increases in Indonesia until 2027 is raising significant concerns regarding public health and economic stability. Instead of prioritizing health-based fiscal policies, the government plans to introduce a new tier for tobacco excise with lower tax rates, a move that critics argue will complicate the current regulatory framework.
The Economic Impact of Tobacco Control
Research suggests that tobacco excise tax should serve primarily as a public health instrument rather than just a revenue generator. By making cigarettes prohibitively expensive, governments can discourage consumption and mitigate the massive long-term health and economic burdens associated with smoking. According to studies from 2019, the economic loss linked to smoking-related health issues in Indonesia ranges between Rp184 trillion and Rp410 trillion.
International examples, such as the Philippines, demonstrate the effectiveness of aggressive tax hikes. Since 2012, the Philippines increased taxes on low-cost cigarettes by up to 1,000% over five years and utilized 80% of the resulting revenue to bolster the national health sector. Similarly, Finland has consistently raised its tobacco taxes every six months since 2016, with levies now reaching 70% of the retail price, effectively reducing smoking rates and cardiovascular disease cases.
Policy Challenges and Future Implications
Experts emphasize that to curb tobacco use, the Indonesian government should ideally implement a 25% annual increase in tobacco excise tax combined with a simplified tariff structure. Projections indicate this approach could reduce the number of smokers by 4.8 million, prevent over one million deaths, and generate an additional Rp102.8 trillion in state revenue. Current trends show that the number of smokers in Indonesia is projected to rise, with smoking now identified as the second-leading cause of death in the nation as of 2026.
The existing policy approach, which often balances revenue needs with industry interests, is viewed by many researchers as a barrier to effective public health reform. Unlike nations that strictly adhere to the WHO Framework Convention on Tobacco Control by limiting industry influence in policy drafting, Indonesia continues to involve stakeholders in tax discussions. This creates potential conflicts of interest that prioritize industrial sustainability over the wellbeing of the population. Moving forward, a shift toward treating excise as a critical component of a comprehensive health strategy is essential to preventing further economic and personal loss.
