Indonesia is introducing taxes on electronic cigarettes

Despite the fact that electronic cigarettes have been available in Indonesia for quite some time, they have not been subject to taxation, although they had excise labels. However, since January 1, the government has decided to collect taxes on these products.
Indonesia has a complex multilevel excise tax system for tobacco products, with tax rates applied to different tobacco products based on the type, method of production, production volume, and price. In addition, the retail price (known as 'Harga Jual Eceran' or 'HJE') of each tobacco product is set by the government. Other types of taxes applied to cigarette products include value-added tax (VAT) (8.4% of HJE) and local cigarette tax (10% of excise). The Ministry of Finance has attempted to simplify the levels of tobacco tax by gradually reducing the number of levels from 19 in 2009 to 8 in 2022. For consumers, this means that the implementation of the tax will impact the price of electronic cigarettes.
Deni Surjantoro, the head of the Communication and Information Services Bureau of the Ministry of Finance, explained that the goal of the new taxes is to control cigarette consumption by the population.
The introduction of taxes on electronic cigarettes is also aimed, according to authorities, at ensuring fairness. Traditional cigarettes, which involve the labor of tobacco farmers and factory workers, have been subject to cigarette tax since 2014, while electronic cigarettes were not taxed.
'The main consideration for introducing the tax on electronic cigarettes is not revenue, but ensuring fairness or equal conditions for the market,' said Luky Alfirmansyah, the Director General of Finance.
Luky explained that the introduction of the cigarette tax follows the collection of a 10% excise tax on tobacco. Meanwhile, revenues from the excise tax on electronic cigarettes in 2023 will amount to 1.75 trillion rupiahs, or only 1% of the total revenue from tobacco excise tax for the year.
'This means that if the tax on electronic cigarettes had been imposed this year, the revenue would have been only about 175 billion rupiahs,' Luky concluded.
More than 50% of these taxes are allocated to healthcare and police needs. Thus, taxes on expensive electronic products will increase this amount.
According to Deni Surjantoro, in the long run, the use of electronic cigarettes may have a negative impact on health, and the substances contained in electronic cigarettes are included in the list of consumer goods that require control.
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