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Indonesia: Proposed Legislation on Tobacco Could Increase Domestic Production

(Mar. 24, 2017) The House of Representatives of Indonesia is considering a proposed law that could increase the country’s tobacco output. (Eveline Danubrata & Agustinus Beo Da Costa, Indonesia Tobacco Bill Would Fire up Output Despite Health Fears, REUTERS (Mar. 15, 2017).) The bill is listed among “priority legislation” on the legislative website. (RRU Tentang Pertembakauan [Bill on Tobacco], PROLEGNAS PRIORITAS (2017) [PRIORITY NATIONAL LEGISLATION PROGRAM (2017)], No. 20, House of Representatives website (last visited Mar. 16, 2017).)

The draft legislation covers the production and distribution of and excise taxes on tobacco. It would require domestic makers of tobacco products to use locally sourced tobacco for a minimum of 80% of their products.  In addition, it would set an excise tax of 200% of the price of imported cigarettes. (Danubrata & Da Costa, supra.) The current excise tax is 43% of the retail price, on domestically produced and imported tobacco products. (World Lung Foundation, Indonesia, TOBACCO ATLAS (2015); Indonesia – Corporate Taxation – Country Surveys – 9. Miscellaneous Taxes (Jan. 1, 2017), International Bureau of Fiscal Documentation online subscription database.)

The goal of the bill, as first considered last year, was to increase domestic cigarette production three-fold by 2020. That original bill was rejected due to objections from the Ministry of Health; the bill was reintroduced in the legislative program for 2017. (Marguerite Afra Sapiie, Indonesia to Decide Stance on Tobacco Bill, JAKARTA POST (Mar. 10, 2017).)

Although on March 14, 2017, the Cabinet Secretary, Pramono Anung, had stated that the proposed legislation was unnecessary, four days later, on the March 18 deadline for a government response to the legislature on the bill, Indonesia’s President Joko Widodo sent a letter to the House of Representatives agreeing that his administration would discuss the proposal with legislators. The letter gave responsibility for the discussions to the Trade, Health, Industry, and Finance Ministers. (Haeril Halim & Margareth S. Aritonang, Indonesia Gives Tobacco Bill a Shot, JAKARTA POST (Mar. 22, 2017).)

Background

Indonesia is the fourth largest cigarette-producing nation in the world. In addition to providing employment for millions of Indonesians, the industry is a significant contributor to the national tax revenue. Nearly two-thirds of Indonesian men smoke. (Danubrata & Da Costa, supra.) As of 2015, more than 217,400 Indonesians had died of tobacco-related causes annually. (World Lung Foundation, supra.)

According to the Minister of Health, Nila Moeloek, her Ministry opposes the bill due to the need to “safeguard the health of the people.” (Danubrata & Da Costa, supra.) An opposite view was expressed by legislator Firman Subagyo, who considers tobacco a “strategic” product that could be beneficial to both farmers and the national budget. He said, “[h]ealth should not be used as an excuse to destroy people’s livelihood.” (Id.)