Role of Tobacco Industries in the National Econom
y
Desi Purnama Wulandari
Faculty of Public Health, Universitas Airlangga, Mulyorejo, Surabaya, Indonesia
Keywords: Tobacco, Taxes, Industry.
Abstract: The tobacco industry widely covers the primary raw material sector including tobacco leaves, cloves and the
cigarette processing sub-industries. The role of the tobacco commodity is prominent in the national
economy as a source of state revenue from excise tax. The value of the tax revenues from year to year
continues to increase. The increase in the tobacco excise tax is due to the policy of increasing the retail price
of tobacco and thus, the cost of tobacco excise. The purpose of this study is to find out how big the
influence of the tobacco industry is on the national economy. This paper uses analytical methods paired with
a qualitative methodology. The results have concluded that the tobacco industry on the one side plays a role
in the national economy and on the other hand, has a negative impact on public health and the environment.
The government's assertiveness to protect people against the negative impact of cigarettes is needed through
measures to increase cigarette prices, increase the cigarette taxes, and to further the cigarette promotion
restrictions in cigarette advertisements and sponsorship activities involving young people. The conclusion is
that the government should seek other solutions to improve the national economy aside from cigarette taxes.
1 INTRODUCTION
Tobacco is one of the agricultural commodities that
has a high economic value, even aside from the
products produced from processed tobacco. The
development of the tobacco processing industry that
has occurred in Indonesia is inseparable from the
consumption of tobacco products. The demand for
high-tobacco processed products is gives a boost to
the tobacco processing industry because of the desire
for continued production and the subsequent profits.
The dependence of the tobacco processing industry
on the domestic market makes the tobacco
processing industry relatively stable, especially
concerning the main raw materials used by the
industry. The price of the raw materials, especially
tobacco, is not affected by the price in the world
market.
The small and medium scale elements of the
cigarette industry can suffer losses due to the
decrease in cigarette consumption by the community
due to FCTC regulations (Framework Convention
on Tobacco Control). These regulations aim to
protect the current and future generations from the
health, social, environmental, and economic
consequences of tobacco consumption and exposure
to second-hand smoke. Not only does the tobacco
industry have a negative impact, but so does the
tobacco farming sector as the main provider of
cigarette production input. The phenomenon of the
tobacco processing industry is interesting to examine
in relation to how its role in the economy comes face
to face with health issues in Indonesia.
2 METHODS
The methods in this study were the qualitative
approach, executed by collecting secondary data, i.e.
data obtained from an agency related to the research
focus. The purpose of this research study was to
know how big the influence of tobacco industry in
relation to the national economy. This is as well as
the economic impact of the tobacco processing
industry on other sectors of the economy.
3 RESULT
3.1 The Tobacco Industry to the Indonesia’s
Economy
The tobacco industry in relation to Indonesia's
economy is very influential. In Figure 1, the income
Wulandari, D.
Role of Tobacco Industries in the National Economy.
In Proceedings of the 4th Annual Meeting of the Indonesian Health Economics Association (INAHEA 2017), pages 165-167
ISBN: 978-989-758-335-3
Copyright © 2018 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved
165

of farmers per hectare in the central cigarette
industry and their income from tobacco has
amounted to Rp 48 million. The average income of
most tobacco farmers in 2012 amounted to Rp 57
million and in 2013, this amounted to Rp 54 million.
Figure 1: Income of farmers per hectare in cigarette
industry centre in 2013
Figure 2: Farmers' income (Rp million / ha) -
national average
3.2 Growth of cigarette industry in
Indonesia.
The average annual growth of cigarette sales is
estimated to be 5.4% over the last 6 years (2009-
2014). It is estimated that the value of cigarette sales
reached 276 trillion in 2014, of which 113 trillion
was excise. The average growth rate of cigarette
sales is 14.6% higher than other industries. This has
increased the average price of cigarettes per year
(2009-2014) by 8.7%.
Figure 3: Cigarette sales (2009-2014)
3.3 Contribution of cigarette industry to tax
revenue
Indonesia's tobacco industry through CHT (Excise
on Tobacco Products) for the last 5 years has
accounted for an average of 9.2% of the total tax
revenue or Rp 443 trillion in the period 2010-2014.
This makes excise tax one of the main contributors
towards state income from taxes. 9.8% of the total
tax revenue in 2014 came from tobacco taxes. The
highest excise increase occurred in 2012 by 23.6%.
Figure 4: Excise and growth
Figure 5: Comparison of cigarette prices with other
countries.
INAHEA 2017 - 4th Annual Meeting of the Indonesian Health Economics Association
166

The estimated value of the contribution of the
tobacco industry to traditional traders in 2014
amounted to Rp 206 trillion. Meanwhile, sales of
cigarettes to the total sales value of FMCG in 2014
reached 43.7%. (Figure 6)
Figure 6:Total sales value of FMCG
4 DISCUSSION
Some of the phenomena associated with the tobacco
sector and tobacco industry in Indonesia are 1) that
the tobacco production has declined an average of
5.98% per year, 2) that the consumption of cigarettes
increases with population and income, 3) that the
tobacco and cigarette industry sector accounts for
about 7% of domestic revenues, but exhausts more
than the foreign exchange, 4) dislikes the absorptive
sector of labour in other sectors, which is a
considerable multiplier output of the sector and 5)
that the tobacco sector has a strong thrust against the
downstream sectors, and the cigarette industry sector
strongly pushes the downstream sector (Hadi and
Friyanto, 2008).
The large number of cigarette excise taxes as a
source of state income has become a pro-contra
debate over the call for tobacco farmers to switch to
other farm enterprises on the land that is owned. As
a raw material for the tobacco industry, the need for
tobacco will probably never cease, so there must be
a development effort to open up new avenues. In
addition to these direct economic benefits, the
indirect economic benefits are also very large in the
retail sector, associated with kiosks, and the
upstream industries of cigarettes such as paper mill
auxiliary materials and others. In the process of
developing tobacco cultivation, there is the fertilizer
industry, pesticides, herbicides, and others. The
restriction and cessation of tobacco plantations will
have a chain impact on the tobacco industry, other
component suppliers from different industries,
industrial workers, wholesalers and retailers who
will all suffer huge losses.
5 CONCLUSION
In Indonesia, the tobacco industry is faced with a
difficult situation. On one side, it plays a role in the
national economy and on the other side, it has a
negative impact on public health and the
environment. The role of tobacco in the national
economy can be seen from the contributions of the
cigarette industry towards the tax revenue of
Indonesia.
Indonesia is a country that serves as a cigarette
market for national and global cigarette producers,
due to its large population, high population growth
rate, and population participation rate, especially in
relation to young smokers. Indonesia's cigarette
industry is mostly owned by large and foreign
investors, so that the value added is enjoyed by the
big and foreign investors, while the Indonesian
people only receive the negative impacts from
cigarettes.
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