Rise in Cigarette Price: Who’s the Real Victim?

It is not odd to hear complaints from smokers lately. Discourse about the rise in cigarette price has been almost dominating the entire discussion of our society. It is obvious to say that smokers are worried about this new regulation. Yet, some agreed to this discourse due to their willingness in stop smoking.  If this regulation is implemented for the sake of society’s health, then who’s the real victim?

This is starting to become a popular topic ever since Hasbulla Thabrany as Head of the Center for Health and Policy from the University of Indonesia piped up. He did a study about cigarette consumption by doing surveys through telephones to 1000 respondents in December 2015 to January 2016. The result shows that 76% of respondents agreed to a rise in cigarette price, and 72% also agreed to stop smoking if the price is above 50 thousand rupiah. This result has been discussed by various informational platform and spread around the news.

There are many of those Indonesian smokers who went abroad for work or school decided to stop smoking. Cigarette price in foreign countries are approximately above 100 thousand rupiah. Comparing to cigarette in Indonesia, it only cost for about 20 thousand rupiah and considered cheap. This is due to tobacco industry is one of the largest industry in Indonesia. While, foreign countries usually imported cigarettes therefore cigarette prices are much more expensive there.

As tobacco industry is major and significant in Indonesia, the increase in price will not only affect in terms of consumption but as well production. An industry can hold up to millions of people, and according to Saleh Husin as Indonesia’s Minister of Industries, tobacco industry in Indonesia take hold of 6.1 millions people working. An increase in price will lead to lower consumption activity, and furthermore decrease production activity. If the regulation implemented valued a box of cigarette for 50 thousand rupiah, it will lower the demand of cigarette and of course the consumption activity. Thus, producer will also cut the amount of cigarette produced and fired workers. All of this chain manifest how a rise in price will result in workers getting unemployed especially for those 1.6 millions tobacco farmers whose services are no more needed.

Although an expensive price for cigarette does not necessarily stop people from smoking. There is a high chance of illegal market selling cigarettes, especially knowing that cigarette in economy is considered as an inelastic product. Cigarette is very addictive and people are dependent of it. Therefore, the act of increasing cigarette prices might not efficiently stop people from smoking yet victimized the workers who are getting fired due to slower forces of production.

Other than that, the rise in cigarette price may as well threaten the national income. According to Saleh Husin as Indonesia’s Minister of Industries, tobacco industry has contributed significantly for the country even more significant than the industry of oil and gas. In 2014, we received 140 billion rupiah from taxes and excise of cigarettes. The discourse regarding an increase in cigarette price has not been examined well as there are various parties stand for different perspectives.

Ade Komarudin as Chairman of DPR RI supported the idea of increasing cigarette price, as he believed that changes in price would not affect significantly to consumption activity. While, people will keep on consuming cigarettes with expensive price and will increase the amount of national income. On the other hand, Johnny Darmwan as Chairman APINDO (Asosiasi Pengusaha Indonesia) in the manufacturing field disagreed and doubt about the inelastic changes. There are still potential that doubling cigarette prices may lower the amount of production thus furthermore decrease national income from excise or taxes being charged.

Even if this regulation is not implemented yet, the discourse that has been spreading through news already harmed several parties. Wholesalers bargain the price of tobacco for only 20 thousand rupiah per kilogram while it is supposed to cost for 40-60 thousand rupiah. Tobacco farmers received half amount of income from their usual earnings. Accordingly, Soeseno Riban as Chairman of APTI (Asosiasi Petani Tembakau Indonesia) wish that the government could straighten out this discourse to stop wholesalers from getting benefit of tobacco farmers.

This related discourse also ruined the investment climate. Tobacco industry is one of the largest industry that catch many foreign investors’ attention. According to Willem Petrus Riwu as a Director in Ministry of Industries, there are so many big names such as Philip Morris from HM Sampoerna has invested a huge amount of investment in this sector. Willem said that increasing cigarette price is not a wise decision as it will ruin the tobacco industry. He also mentioned about Indonesia’s tobacco industry condition for the last 5 years, as there are already 2000 industries are being closed and those who are still up for paying excise are 100 industries left.

Government should think twice and start examining this concern in a right manner. As according to Hasbulla Thabrany’s study, he proposed a rise in cigarette price to avoid Indonesia’s health issues become worsen. Yet, at this point this decision will lead to a much bigger consequences as it will victimized various parties. It will surely inflict a financial loss in Indonesia’s national income and as well harm individual workers in tobacco industry. This issue will not only relate to smokers only, but behind the scenes, there are so many parties being conflicted to this discourse.  Further study is necessary to at least decide right amount of price that conduce a fair result for all related parties.

By: Salsabila Bratandari Nazief | Ilmu Ekonomi 2015 | Staff Kajian Kanopi 2016

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Sources:

• http://health.kompas.com/read/2016/07/29/182332923/bagaimana.jika.harga.sebungkus.rokok.lebih.dari.rp.50.000.
• http://www.merdeka.com/uang/wacana-harga-rokok-naik-jadi-rp-50000-per-bungkus-menguat.html
• http://m.liputan6.com/bisnis/read/2584948/pengusaha-minta-kenaikan-harga-rokok-lewat-kajian-mendalam
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• http://m.liputan6.com/bisnis/read/2586056/ini-pihak-yang-dapat-untung-dari-isu-kenaikan-harga-rokok
• http://m.liputan6.com/bisnis/read/2585966/isu-kenaikan-harga-rokok-hanya-timbulkan-kegaduhan-di-masyarakat
• http://m.tribunnews.com/bisnis/2016/08/21/wacana-harga-rokok-naik-hingga-rp-50000-ini-tanggapan-sampoerna