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Indonesia's planned cigarette tax hike to lead to production cut, layoffs

Wed, 18th Sep 2019 13:51

JAKARTA, Sept 18 (Reuters) - Plans by the Indonesiangovernment to raise tobacco excise tax and minimum cigaretteprices next year will force companies to cut production andpotentially cause layoffs, industry associations said onWednesday.

Indonesia has one of the world's highest smoking rates andtobacco was responsible for 14.7% of all deaths in the country,mostly through cardiovascular diseases, according to the WorldHealth Organization.

The government wants to reduce consumption by raisingminimum cigarette prices across all categories by an average of35% and cigarette taxes by 23%.

Three associations of cigarette makers warned in a jointstatement the steep increase would force them to cut 15% ofproduction volumes, resulting in disruption in the cigarettesector, a 30% drop in absorption of tobacco and clove, job cutsand an increase in sales of illegal cigarettes.

"The tobacco industry is a strategic industry that gives abig contribution of 10% of the state budget, or as much as 200trillion rupiah ($14.2 billion)," they said in a statement,adding that they were "disappointed" they had not been consultedprior to the announcement.

The industry produced 330 billion cigarettes in 2018,according to government data, while the associations say theindustry employs 7.1 million people in manufacturing and salesof tobacco products and tobacco plantations.

Finance Minister Sri Mulyani Indrawati on Monday defendedthe planned hike, saying the government had tried to find "abalance" between rising numbers of young smokers and cigarettes'popularity among Indonesia's poorest, with the possible impacton the livelihoods of tobacco farmers.

($1 = 14,055.0000 rupiah)(Reporting by Maikel Jefriando and Tabita Diela; Writing byGayatri Suroyo; Editing by Toby Chopra)

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