Indonesia to increase tax on tobacco products..

December 11, 2008 - The government will raise the excise duty for cigarettes and tobacco products, starting Feb. 1, 2009, by an average 7 percent to help increase state revenues, while at the same time keeping the industry viable.

The excise duty will be changed from a combination of ad valorem (based on a product's retail price) and specific taxes (based on a product's retail price) only, based on production levels and retail prices for cigarettes and tobacco products, the Finance Ministry said in a statement Wednesday (December 10, 2008).

The arise in excise duty aims in part to contain the growth of cigarette consumption to 5 percent, less than the 7 percent growth booked in 2008 , and to increase excise duty income from the industry to Rp 48.2 trillion (US$4.37 billion) as stated in the 2009 state budget, up Rp 2.7 trillion from the 2008 budget.

Indonesia, Southeast Asia's largest economy, has the lowest average price for cigarettes worldwide -- and analysts estimate about 12 million people are directly or indirectly dependent for their income on the industry. (A third of Indonesians now smoke, up from a quarter 10 years ago. Cigarettes cost as little as $1 a pack in Indonesia, which has a population of around 225 million. About a quarter of deaths in Indonesia in 2005 were caused by tobacco.)

Reference: Cigarette duty will rise 7 percent to boost government revenue, Aditya Suharmoko, The Jakarta Post, 12/11/2008.

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