Raising and Simplifying the Cigarette Excise Tax in Indonesia: Simulated Revenue Gains and Public Health Benefits

This Policy Brief was written by Center for Indonesia’s Strategic Development Initiatives (CISDI) in Indonesia. The policy brief assesses the impact of three tax reform scenarios on tax revenues and public health compared to the baseline with no tax reform. Specifically, the authors consider the effect of uniform annual increases (Scenario 1), machine-rolled tier simplification followed annual tax increases (Scenario 2), and hand-rolled tier simplification followed by annual tax increases (Scenario 3). The findings show that Scenario 3, which eliminates two hand-rolled cigarette tiers, would lead to the largest increase in cigarette prices, the greatest reduction in consumption, and highest revenue gains from 2025 to 2027. The average price of cigarettes would increase 31.1% in that time frame under Scenario 3, compared to 25.8% and 30.2% in scenarios 1 and 2, respectively. As a result, consumption would decrease by 16.1% in Scenario 3, 14% in Scenario 2, and 12% in Scenario 1. The total government tax revenue from cigarettes would increase the most under Scenario 3, with a 26.19% increase, followed by a 23.67% increase under Scenario 2, and a 22.09% increase under Scenario 1. In contrast, at the baseline with no tax reform, the average price of cigarettes would only increase 3.2%, solely driven by inflation, and consumption would decrease by 0.6%, with no change in tax revenue collection. Under Scenario 3, adult smoking prevalence would also decline by 1.6% leading to 292,324 premature deaths averted. The policy brief concludes with recommendations for policy makers to improve tobacco taxes by increasing tax rates and simplifying the complex structure. 

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