The Macroeconomic Impacts of Tobacco Taxation in Indonesia: 2025 Update

This Report was written by Center for Indonesia’s Strategic Development Initiatives (CISDI) in Indonesia. The report assesses the macroeconomic impact of 12 policy scenarios using an Input-Output analysis. Specifically, the researchers consider how different excise tax increases, degrees of tier simplification, and government revenue allocation would affect cigarette consumption, tax revenue, economic output, aggregate income, and employment. The findings show that, across each of the scenarios, a cigarette excise tax reform would generate positive net macroeconomic outcomes. Higher excise taxes would reduce consumption, while generating government revenue and reaping net gains in economic output, aggregate income, and employment. Notably, excise tier simplification strengthens the effectiveness of raising excise taxes, resulting in larger declines in consumption and raising additional government revenue. The most impactful scenario was a 50% excise tax increase, combined with hand-rolled and machine-made tier simplification. The economic output under this scenario would grow by approximately Rp 315.1 trillion, aggregate household income would increase by Rp 81.7 trillion, and there would be approximately 1.14 million additional jobs. The policy brief concludes with recommendations for policy makers to continue to significantly raise cigarette taxes, while simplifying the complex tax tiers to reap the macroeconomic benefits.

A Policy Brief based on this report can be found here.