By Maikel Jefriando
JAKARTA, Sept 16 (Reuters) - Indonesia's finance ministerdefended on Monday a plan to raise cigarette prices by more thana third from next year to reduce smoking rates, after some inthe tobacco industry said it would encourage illegalmanufacturing and threaten jobs.
Highlighting the fact the excise tax for 2019 had been flat,Finance Minister Sri Mulyani Indrawati told reporters thegovernment had tried to find "a balance" between rising numbersof "young smokers, especially young female smokers" andcigarettes' popularity among Indonesia's poorest, with thepossible impact on the livelihoods of tobacco farmers.
Indonesia is the world's second-largest tobacco market,after China.
"On the one hand, we are concerned about health, while onthe other we have to pay attention to farmers and cigaretteworkers ... and also guard against a rise in illegalcigarettes," the minister said.
The tax increase, which will take effect from Jan. 1 and wasannounced on Friday, will see the government raise the minimumprice of cigarettes across categories by an average of 35% andincrease the excise tax on tobacco products by 23%.
Nearly 70% of adult men smoke in Indonesia, according to theWorld Health Organization - one of the highest rates in theworld - and tobacco kills 225,720 people each year in thecountry, or 14.7% of all deaths, mostly through cardiovasculardiseases, the WHO said in a 2018 report.
The Indonesian government has been raising taxes on tobaccoproducts almost every year since 2014, but that has not had asignificant impact on smoking rates.
INDUSTRY REBUKE
The sharp excise hike was criticized by some companies andindustry lobby groups on Monday.
Hananto Wibisono, spokesman for Indonesia Tobacco CommunityAlliance, said in a statement that the increase riskedincreasing the spread of illegal cigarettes.
"If illegal cigarettes become widespread, then all partiesare disadvantaged, from legal cigarette manufacturers, theirworkers, to tobacco and clove farmers. The government will alsobe at disadvantage because illegal cigarette producers don't payexcise taxes," he said.
Philip Morris-controlled HM Sampoerna, one of Indonesia'sbiggest cigarette companies, said they had received no warningfor the increase.
"It will definitely disrupt the tobacco ecosystem," HMSampoerna director Troy Modlin said in a statement.
Gudang Garam and the unlisted Djarum, Indonesia's two of thecountry's other largest tobacco companies, did not respond torequests for comment.
Both Gudang Garam and HM Sampoerna sawtheir shares tumble by more than 20 percent on Monday, withanalysts warning the increase could hurt the Indonesian tobaccogiants' 2020 earnings.
Indrawati told reporters the excise hike would only resultin a 10% increase on the labour-intensive, domestic handrolledcigarette industry.
"But for companies whose turnover is over 50 billion rupiah,the increase is relatively higher," she said.
Indonesia aims to collect 172 trillion rupiah ($12.32billion) of revenue from tobacco excises in 2020, according togovernment proposals for next year's state budget that isawaiting parliamentary approval.(Reporting by Maikel Jefriando; Additionaal reporting byStanley Widianto and Fanny Potkin; Writing by Fanny Potkin andGayatri Suroyo; Editing by Alex Richardson)