Tobacco Industry Indonesia: Import Tariff to Be Raised in 2018
Indonesia will not only raise excise duties on tobacco products per January 2018 but it was also announced that the import tariff on tobacco will be raised as well. Although the exact amount remains unknown, Indonesian Coordinating Minister for Economic Affairs Darmin Nasution confirmed the step would be taken in 2018.
Besides the higher import tariff, a number of new rules are being formulated that need to be followed by Indonesian tobacco importers. Two of the new rules are: (1) importers/distribution centers will be required to absorb a certain amount of locally-produced tobacco, and (2) only those importers that obtained a recommendation letter from the Agriculture Ministry can import tobacco. This recommendation letter will only be handed to those companies that purchase enough tobacco from local producers.
These regulations aim at enhancing the welfare of Indonesian tobacco producers as they will have certainty that their products will be absorbed (for example by the cigarette industry, the largest consumer of tobacco).
Meanwhile, the advantage of the higher import duty is that government revenue will rise. Currently, the Indonesian government only applies a 5 percent import duty. This is such a low rate that Indonesian cigarette manufacturers are not too encouraged to absorb locally produced tobacco.
However, it has to be emphasized that local tobacco production in Indonesia is not enough to meet all demand across Southeast Asia's largest economy, hence tobacco imports are a must. Still, there are reports that local industries prefer to import tobacco from abroad - rather than purchase it on the local market - as the price difference is too low (often imports are even cheaper), while the quality of imported tobacco is higher.
Based on data from Statistics Indonesia (BPS), the value of tobacco imports into Indonesia continues to rise sharply each year. In the January-July 2017 period tobacco imports reached USD $318.49 million, up 16.11 percent from imports in the same period last year.
Meanwhile, in Indonesia's cigarette industry, production is expected to rise in 2017 to 360 billion cigarette sticks (from 342 billion in the preceding year).
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Phillip Morris will be up and good next year, considering the 2017(8) projection