New evidence of illicit cigarette consumption and government revenue loss in Indonesia.

Abstract

INTRODUCTIONIllicit cigarettes because of their affordability could increase smoking prevalence, especially among young people. They also cause a large revenue loss for the government. This study aims to estimate illicit cigarette consumption and government revenue loss in Indonesia, a country with a very high smoking prevalence, especially among males.METHODSWe estimated illicit cigarette trade in terms of volume and revenue loss. Illicit trade was estimated as the discrepancy between legal cigarette sales and domestic consumption recorded by national representative surveys. Data sources included Basic Health Research Survey, Global Adult Tobacco Survey, National Socioeconomic Survey, and data from Ministry of Finance.RESULTSWe found that illicit cigarette consumption fluctuated from 19 billion sticks in 2007 to 14 billion sticks in 2013, and sharply increased to 59 billion sticks in 2018. Relative to cigarette consumption, illicit cigarettes were the lowest at 5% in 2013 and highest at 19% of consumption in 2018 (assuming 0% underreporting). The estimated government revenue loss ranged from IDR 24.2 to 42.0 trillion (US$ 1668 to 2897 million), which corresponds to 15.8% to 27.5% of cigarette excise revenue in 2018.CONCLUSIONSIn Indonesia, illicit cigarette consumption was found to be high and increasing, which contributed to a large government revenue loss (almost onethird of tobacco excise tax revenue). To reduce illegal cigarette production and smuggling, the government should increase resources to enforce the regulation on the excise tax system including stronger penalties, especially related to illicit cigarette production.