2018 Indonesia Cigarette Market Analysis: E-Cigarettes Taxed at 57% to Support the Domestic Tobacco

 Indonesia, as an important producer and exporter of various tobacco products including cigarettes and cigars, is a significant part of the Asian tobacco market. Tobacco advertising is ubiquitous in Indonesia, and despite a global decline in tobacco sales, it has continued to grow. However, in 2017, there was a decline in sales for the first time. In 2018, Indonesia imposed a 57% tax on e-cigarette products. The status of Indonesia as a tobacco paradise is at risk.

2018 Indonesia Cigarette Market Analysis

The initial decline in cigarette sales in the Indonesian market was surprising. As in the past, at the beginning of 2016, aside from normal growth in consumption tax and an increase in minimum retail prices, the government did not implement strict anti-smoking policies, and there were no clear smoking bans in some public places. However, after reviewing the following content, you will also feel that Indonesia's status as a tobacco paradise is at risk.

1. Anti-smoking efforts lead to livelihood issues for smokers. For Indonesia, the pressure from anti-smoking organizations and the international community is increasing, demanding more action from the Indonesian government in tobacco control. The tobacco industry's tax revenue reached 143.5 trillion Indonesian Rupiah (1 Indonesian Rupiah is approximately 0.0005 RMB), which is a huge amount for a country looking to improve its domestic infrastructure. Additionally, thousands of Indonesians form a complex supply chain network for cigarettes. If overly strict measures are taken against the tobacco industry, it may affect the livelihoods of factory workers and many tobacco farmers.

2. All three types of cigarettes have seen a decline in sales. The poor sales of hand-rolled clove cigarettes and white cigarettes (the common term for regular cigarettes in Indonesia) are not surprising—consumer preferences have changed, and the market demand for clove cigarettes has been steadily declining for years, while white cigarettes are also less popular. What truly dampens the market is the decline in sales of machine-made clove cigarettes, which account for three-quarters of the country's cigarette market.

3. Price increases lead to sluggish consumption. Low-income consumers are the first to feel the impact of price increases, and this demographic is significant in Indonesia. With rising prices of other necessities, many low-income consumers can only reduce their daily cigarette consumption.

4. Consumers are turning to new tobacco products. In 2016, sales revenue from e-cigarettes in Indonesia grew nearly fivefold, reaching 321 billion Indonesian Rupiah.

In the first half of 2017, due to further increases in tobacco product consumption tax, minimum retail prices, and value-added tax, some data and information indicate that the Indonesian cigarette market is suffering from a continuous decline in sales. Therefore, in the short term, the possibility of a rebound in cigarette sales in the Indonesian market is slim. Perhaps, Indonesia will no longer be a paradise for cigarette consumption.

Reports indicate that this Southeast Asian country has the highest smoking rate in the world, with 65% of adult males smoking, and the price of a pack of cigarettes is around $2 (approximately 12.7 RMB).

Indonesia imposes a 57% tax on e-cigarette products.

In the country, it is difficult to find smoking cessation products, and as more and more tobacco companies are being shut out by strict anti-smoking countries, Indonesia has emerged as a major growth market. Despite being a tobacco paradise, e-cigarette cafes have been developing amidst controversy in recent years.

In response, the Indonesian government announced that starting in the summer of 2018, it would impose a tax of up to 57% on non-tobacco alternatives. Indonesian health expert and advisor to the National Tobacco Control Committee, Hasbullah Thabrany, warned that while tariffs and consumption tax laws require the government to set taxes on these products, the government may use taxation to favor one side, stating, "I believe this policy will support the tobacco industry."

Indonesian Trade Minister Enggartiasto Lukita stated that the development of e-cigarettes would harm the interests of tobacco growers, and those who turn to e-cigarettes should stick to traditional cigarettes.

The Indonesian government's policy is not welcomed by IT worker Roy Iskandar, who turned to e-cigarettes after multiple failed attempts to quit smoking, stating, "If the government imposes such high taxes, then people like me who feel healthier after quitting smoking may relapse."