Cigarette Giants Crippled by Tariffs

Minister of Finance, Sri Mulyani has announced that the Indonesia’s finance ministry will raise the excise tax on tobacco products by 23% and the minimum price of cigarettes across categories (retail price) by an average of 35%. According to a 2018 report by the World Health Organization, Indonesia has one of the highest rates of smokers in the world. This report states that nearly 70% of adult men smoke in Indonesia, and tobacco caused 14.7% of all deaths in the country each year. With relatively affordable prices compared to other countries, combined with Indonesians’ habit of smoking that is already rooted deeply in the society, the cigarette industry gains so much profit from this situation. The Ministry of Finance aims to reduce the amount of active smokers in Indonesia by implementing the mentioned policy.

As Q1 came to an end on Monday (16/9), HMSP was down 17,14% to the level of Rp 2.320/share, the lowest point it has ever hit since 1991. On the other hand, GGRM was down by 17.8%, shrinking it price to Rp. 56.550/share, the lowest that has ever been recorded since 1998. Market capitalization of HMSP fell from Rp. 268,69 Trillion to Rp 55,8 Trillion, while GGRM fell from Rp 108,5 Trillion to Rp 23,5 Trillion. To grasp how significant the whole situation is, IHSG fell by 2%, as both companies are two biggest blue chip companies in the stock market.

The future for cigarette sales in Indonesia looks bleak. Trimegah Sekuritas Analysts, Heribertus Ariando and Darien Sanusi did some research where it said that the estimated effect from this policy making will decrease PT HM Sampoerna Tbk income by 14% and PT. Gudang Garam Tbk by 18% in the year 2020. The head of Gabungan Perserikatan Pabrik Rokok Indonesia (GAPPRI), Henry Najoan, said that the decision for tax and tariff is quite extreme that it could lead to a massive termination of employment, especially since in the past years, tariffs were only increased up to 10%, and said that this policy can trigger black market for cigarettes. However, the move is seen as as a concrete, firm step towards reducing cigarette consumption in Indonesia.

Sources:

CNBC Indonesia

CNN Indonesia

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