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Indonesia becomes the puffer's paradise

DPA, Jakarta
Wednesday, Feb 04, 2004, Page 16

Indonesian college students sit in front of their campus enjoying a cigarette break. Indonesia has frozen excise taxes on cigarette sales in the country, which ranks fifth among the world's leading tobacco consuming countries. PHOTO: DPA

Indonesia has reaffirmed its status as a cigarette manufacturer's and puffer's paradise. Early last month, the Finance Ministry announced a freeze on excise tax hikes on cigarettes for this year in an effort to encourage local cigarette manufacturers to boost their annual production to 200 billion sticks, about 1,000 cigarettes per capita.

The policy decision flies in the face of international norms; most governments nowadays urge their populations to smoke less to avoid cigarette-related diseases and unnecessary deaths.

"The government has effectively legalized cigarette-related deaths," said Marius Widjajarta, spokesman for the Indonesian Consumer Health Empowerment Foundation.

Indonesia ranks fifth among the world's leading tobacco consuming countries, with a 62 percent smoking prevalence among men aged over 15. The prevalence rate for women is only 1.3 percent.

Annually, Indonesia records more than 3 million illnesses and 400,000 deaths attributed to tobacco, but since there is little socialized medicine, cigarette consumers pay their own hospital and funeral fees.

The government's decision to freeze cigarette taxes defies advice from the WHO and World Bank whose studies have demonstrated that higher taxes on cigarettes are the best way to force people, especially the poor, to quit smoking.

World Bank studies have also found that governments reap higher revenues when cigarette taxes are raised, even though consumption declines.

Under the 32-year reign of former autocrat President Suharto, the local cigarette industry enjoyed low taxes and little regulation. Production increased from 14.3 billion sticks in 1969 to 230.7 billion sticks in the year 2000. The vast majority of cigarettes manufactured in Indonesia are kreteks, sweet-smelling clove-flavored cigarettes that account for some 88 percent of all sales.

Under Suharto, the kretek industry enjoyed hands-off treatment partly because his son, Hutomo "Tommy" Mandalaputra, had been granted a monopoly over the domestic trade in cloves, which make up 30 to 40 percent of the kretek's ingredients.

That monopoly ended in 1998, when the Indonesian economy collapsed amid the Asian regional crisis and Suharto was forced to resign.

His immediate successor, President B.J. Habibie, passed the country's first law regulating the tobacco industry in 1999.

The law prohibited cigarette advertisements on TV during the daytime and banned smoking in public hospitals, but still allowed cigarette companies to advertise on billboards and sponsor sporting and cultural events.

The economic crisis also prompted the government to reconsider its tax policy on cigarettes.

Since 1998, Indonesia has increased excise tax on cigarettes annually, with the tax reaching an average of 31 percent of the retail price in 2003, although this is still low by regional standards.

With the higher excise tax rates, the government's revenues from the cigarette industry doubled from 10.1 trillion rupiah (US$1.2 billion) in the year 2000 to 21.2 trillion (US$2.3 billion) in 2002.

Last year the government earned 26.3 trillion rupiah off cigarette sales, slightly below its target of 27 trillion. Last year, cigarette sales dropped to 186 billion compared with 204 billion in 2002.

The tax shortfall was the reason given by the finance ministry for freezing excise tax hikes on cigarette prices this year, but anti-smoking campaigners claim the real reason has more to do with the upcoming elections this year.

"This tax freeze policy came from the parliament after lobbying by the cigarette companies," said Soewarto Kosen, a tobacco expert at the National Institute of Health Research and Development.

Kretek manufacturers are powerful players on the Indonesian economy. The three largest companies -- Gudang Garum, Sampoerna and Djarum -- account for 76 percent of the cigarette market, and are listed among Indonesia's top 10 companies in sales and profits.

They also have political clout, as many cigarette companies are known to give funds to political parties for their election campaigns. Indonesia is scheduled to hold a general election on April 5, and its first direct presidential election on July 5.

Many cabinet ministers have openly supported the tobacco industry because it is a significant source of employment, a hot issue in a country where an estimated 45 million people are without work.

Some 245,000 Indonesians are employed in cigarette factories, while 900,000 work as tobacco farmers and another 1.2 million are clove farmers.

With many of Indonesia's kretek companies and tobacco farms based in Java, which accounts for more than 60 percent of the country's population, and voters, health officials are holding their breath until after the election to resume their anti-smoking campaigns.

"We hope that after the election, this decision to freeze cigarette taxes will be re-examined by a new government," said Kosen.
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