Batam - The government has decided to increase the Cukai Hasil Tembakau or CHT (CHT-  excise tax on tobacco products) or cigarette excise by 10 percent in 2023 and 2024. More detail, the CHT rate increase for each class includes Sigaret Kretek Mesin or SKM (SKM - Machine Clove Cigarettes) I and II, around 11.5 percent to 11.74 percent. 

CHT rates for Sigaret Putih Mesin or SPM (SPM- Machine-made White Cigarettes) I and II are 11 - 12 percent. Meanwhile, Sigaret Kretek Pangan or SKP (SKP- Food Clove Cigarettes) I, II, and III increased by 5 percent.

The Directorate General (DG) of Customs of Kementrian Keuangan or Kemenkeu (Kemenkeu- Ministry of Finance) admits that the circulation of illegal cigarettes is directly proportional to the increase in tobacco excise rates. Director of Communication and Guidance for Service Users of the Directorate General of Customs and Excise, Nirwala Dwi Haryanto, said that the increase in cigarette excise rates will have a positive correlation with the circulation of illegal cigarettes in the country.

According to him, the pandemic has caused to weaken people's purchasing, while the price disparity between legal and illegal cigarettes is getting further. Not only that, the high burden of state taxes on legal cigarettes has caused the circulation of illegal cigarettes to increase.

"Currently, the disparity between legal and illegal cigarettes reaches 68 percent. Before the VAT increase, it was around 62 percent, but after the VAT increased from 9.1 percent to 9.9 percent, it became 68 percent," he said.

He revealed that illegal cigarettes are cigarettes distributed in Indonesia both from domestic and imported products that do not follow the rules that apply in Indonesian jurisdiction.

Meanwhile, the characteristics of illegal cigarettes include, not being attached with excise tapes (plain cigarettes), attached with excise tapes that are not under their designation, attached with fake excise tapes, and attached with used excise tapes.

Nirwala explained that law enforcement against perpetrators of illegal cigarette sales is by imposing administrative and criminal sanctions as stated in Law Number 39 of 2007, amending Law Number 11 of 1995 on excise.

The sanctions for perpetrators of criminal offenses related to the circulation of illegal cigarettes are imprisonment for a maximum of five years and/or a maximum fine of ten times the value of the excise tax that should be paid.

Therefore, to eradicate the circulation of illegal cigarettes, Customs keep increasing the supervision of the circulation of illegal cigarettes through the operation 'Gempur Rokok Ilegal' (Exterminating Illicit Tobacco in English).

Based on Customs records, Gempur Rokok Ilegal Operation in the period 2018 - 2022 continues to increase the number of prosecutions, while the number of Barang Hasil Penindakan or BHP (BHP- goods resulting from prosecution) tends to decrease every year.

"In 2020, the number of prosecutions amounted to 9,018, with state losses reaching more than IDR 662 billion. In 2021 the number of prosecutions increased to 13,125, with state losses reaching IDR 293 billion. Meanwhile, from 2022 until now, the total number of prosecutions has increased to 18,659 with a total state loss of IDR 407 billion," Nirwala explained.

According to him, successfully eradicating illegal cigarettes requires the cooperation of many people, both the government and the community. It is hoped that the Gempur Rokok Ilegal Operation can increase the obedience of entrepreneurs to create justice and balance," he said.

Circulation Depends on Excise...

Circulation Depends on Excise

Executive Director of the Institute for Development of Economics and Finance (INDEF) Tauhid Ahmad said the higher the increase in cigarette excise rates, the higher the circulation of illegal cigarettes. "So, the circulation of illegal cigarettes is very dependent on the increase in cigarette excise rates. If the excise tax increase is still normal, automatically, the circulation of illegal cigarettes will only be so-so," he said.

According to him, as a sector that has a large contribution to state revenue in terms of cigarette excise, regulations that favor the tobacco products industry (IHT) sector are needed, including first, regulations that favor the industry, including those related to the application of cigarette excise tax rates.

Second, the policy of prosecuting illegal cigarettes. According to him, the more massive the increase in illegal cigarettes, the healthier it will be for the tobacco industry. "This means that the market is getting bigger, and producers are no longer afraid to produce. However, if enforcement is low, the circulation of illegal cigarettes will automatically be high, so the market for legal cigarettes will decrease," he explained.

Third, related to the rules regarding promotion. According to him, PP 109/2012 has been very supportive of the sustainability of the IHT sector, although, in practice, it still lacks a lot. "Currently, promotions are using digital, which is getting more difficult to control and does not know the time. For the others, there is a time limit when they promote and so on," said Tauhid.

Fourth, export and import regulations related to raw materials. And the last one is about preventing policies that support child prevention. "This is also important to support the industry. We also don't want this industry to be continuously accused of poisoning children's future," he explained.

Tauhid said there are several ways to prevent the increasingly massive circulation of illegal cigarettes, among others. First, the increase in cigarette excise rates is not too high.

Second, coordinate with industrial stakeholders to monitor the circulation of illegal cigarettes. According to him, this coordination is very important to help inform the government regarding market areas for the circulation of illegal cigarettes.

Third, expand the Human Resources (HR) in the regions, and increase the budget related to prosecuting illegal cigarette circulation. "I am sure that in reality, illegal cigarettes may be higher than the official data from Customs and Excise because the data from Customs and Excise is data on the prosecution, not the circulation of illegal cigarettes. So a new instrument needs to be built," said Tauhid.

Extraordinary Crime....

Extraordinary Crime

On the other hand, GAPPRI Secretary General Willem Petrus Riwu said that the eradication of illegal cigarettes is the responsibility and authority of the Directorate General of Customs. According to him, the current structure of illegal cigarette circulation is very powerful.

"Sometimes the factory only sees it and provides information if requested," he said.

Regarding data on the circulation of illegal cigarettes, Willem said that data like this could not be provided, except Badan Pusat Statistik or BPS (BPS- Central Statistics Agency). "My experience is that it ends up being a disadvantage and makes it difficult for the factory. We see that it is the main task and function of industry supervisors, labor supervisors, and role supervisors. They should have that data," said Willem. 

Furthermore, Willem said that the eradication of illegal cigarettes must be extraordinary because this is an extraordinary crime. To eradicate it is quite difficult, and some law enforcers from Customs have become victims.

"Our suggestion for a safe way to eradicate illegal cigarettes is not to raise excise rates too high so that the price difference is not too large between legal and illegal cigarettes," he said.

"Imagine that legal cigarette factories have to pay taxes, excise, and local taxes of around 73-82 percent of the sold value. So illegal cigarettes sold at a price 80 percent below the price of legal cigarettes can already profit and develop. The state will lose revenue, threaten the State Budget Law, and negatively impact the nation because there are more and more illegal operations," concluded Willem.