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Tax Gap of Heated Tobacco Products in Indonesia
In 2017, the Republic of Indonesia amended the Excise Tax Law to include new tobacco products, including heated tobacco. The regulation became effective on July 1st, 2018 (Regulation No. 146/PMK.010/2017). Taxable new tobacco products are defined as “Other Tobacco Processed Product, which refers to tobacco product 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). Until 2021, the excise rate for these products was a pure ad valorem tax set as 57% of the retail sale price proposed by the tobacco product manufacturer or importer. However, since January 1st, 2021, the tax system for heated tobacco products was updated from an ad valorem system to a specific tax system. Regulation 192/PMK.010/2022, amending Regulation 193/PMK.010/2021, states that effective January 1st, 2023, heated tobacco products are classified as “solid e-cigarettes’’ (“rokok elektrik padat”), and are taxed at IDR 2,886 per gram. The tax shall be increased to IDR 3,074 per gram effective January 1st, 2024.
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 varies based on annual production and “declared banderole prices.” As of 2023, the system included 8 price tiers. 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 sale prices and is announced by the Ministry of Finance. It also sets a statutory minimum price for each brand.
Most international brands (including Marlboro) are white cigarettes (SPM) and fall in the highest price tier.
The excise tax rates (FED) and minimum excise rates (HJE) for SPM cigarettes in Tier I are:
- From January 1st, 2023: IDR 1,193 per cigarette (FED) and IDR 2,165 per cigarette (HJE)
- From January 1st, 2024: IDR 1,336 per cigarette (FED) and IDR 2,380 per cigarette (HJE)
Sources:
- Ministry of Finance: Excise Rates for Tobacco Products
- Ministry of Finance: Amendment to Excise Rates for Tobacco Products
Last updated Sept. 1, 2023