Fiscal Policy Office
Ministry of Finance of The Republic of Indonesia
Development of Excise
and Other Product
Specific Taxes
Priorities for Reform in Indonesia
Dr. Nasruddin Djoko Surjono
Deputy Director of
Customs and Excise Policy Division
International Conference on Tax, Investment, and Business (ICTIB) 2016
Jakarta,24 May2016
Presentation outline
1. Basic Excise Policy Consideration
2. Development of Excise Policy
■ On Tobacco Excise
■ On Alcoholic Beverage
3. Strategic Excise Policy Priorities
4. Developing an Excise ‘Roadmap’
Slide 2
Basic Excise Policy Considerations
The characteristics of excisable goods as
stated in article 2 of Excise Act no. 39/2007:
TOBACCO
PRODUCTS
Its consumption needs to be controlled
Excisable
Goods in
Indonesia
(Article 4)
Its circulation needs to be monitored;
Its consumption may negatively impact for
society or the environment, or
Its consumption needs to be imposed by
tax for the sake of fairness and balance
ALCOHOLIC
BEVERAGES
ETHYL
ALCOHOL
Extensification of Excisable goods
(subject to excise) regulated
further by the
Government Regulation
3
Excise Tax Policy
a.
b.
Tariff & Tax Base
If made in Indonesia:
1. 275% of factory price; or
2. 57% of retail price.
For imported products:
1. 275% of customs value plus import duty; or
2. 57% of retail price.
Current excise tax system:
Specific tariff s ystem by c onsidering the type of
tobacco, production group, and minimum retail price.
a.
b.
If made in Indonesia:
1. 1.150% of factory price; or
2. 80% of retail price.
For imported products:
1. 1.150% of importing price plus import duty; or
2. 80% of retail price.
Current excise tax system:
Specific tariff system by considering the alcohol content.
Regulation
• Tax rates could be changed from a
percentage into basic price in
Rupiah for each unit of goods
subject to excise. (Art 5, para 3)
• Excise tax policy to achieve revenue
considering the industry conditio n
and the aspiratio ns of industrial
businesses
is
submitted
to
parliam ent for approval. (Art 5,
para 4)
• Changes in excise tax policy has
several
objectives,
such
as
controlling
co nsum ptio n,
generating
revenue,
and/or
monitoring the goo ds subject to
excise, among others. (Art 5, para 5)
Considerations in using specific tariff system:
1) Government does not distort the market;
2) Fits to perform control function;
3) Allows simple adm inistration sy stem in co lle cting
and controlling; and
4) Government does not have to set the base price.
Current Policy
4
Tobacco Excise Policies in Last 5 Years
2010
2011
2012
2013
2014
2015
2016
16,0%
6,0%
16,3%
8,5%
0%
8,72%
11,33%
-
-
-
-
10%
10%
10%
Total Adjustm ent (Excise +
Local Tax)
16,0%
6,0%
16,3%
8,5%
10%
9,59%
12,46%
Production (billion sticks)
292,22
317,82
325,76
345,88
344,52
348,10
351,6/344,6
8,8%
2,5%
6,2%
-0,4%
1,04%
+ 1%
Excise Tariff Adjustment
Local CigaretteTax
Growth of Production
MoHealth Decree no. 40 year
2013; the target of prevalence
decreasing 2015-2019: 1% per year
10% in increasing tariff
Riskesdas 2007-2013
Key
performance
indicators of
excise tax policy:
§ Production Growth
§ Smoking
prevalence
§ Number of labors
§ Revenue
§ Cigarette price
§ Etc...
Development of Excise Tax Policy
on Tobacco
Excise Tax Structure on Cigarettes 2016
Class of Prod.
Group
(Stick)
Machine-Rolled Clove
Cigarette
Machine-Rolled White
Cigarette
I > 2 billion
II <=2 billion
I > 2 billion
II <=2 billion
I > 2 billion
Hand-Rolled Clove
Cigarette
II > 350 million – 2 billion
IIIA > 50 - 350 million
IIIB 50 million
Source: PMK-198/PMK.011/2015
Min. Retail
Price
Tariff
Excise System 1995 -…
1995-2007
2007-2008
2009- present
Hybrid
Specific
(IDR/Stick) (IDR/Stick)
1.000
> 740
590 - 740
930
> 800
505 - 800
> 1.115
775 - 1.115
> 605
403 - 605
400
370
480
340
300
495
305
255
320
Advolorem
Policy
− Raise the selling of retail price and tax rate;
− Simplify the structure of excise tariff
245
155
140
90
80
“Since 2011, the government has
simplified the structure of excise
tariff, from 19 tiers to 15 tiers,13
tiers, and 12 tiers at present”
6
Total Excise Revenue vs Total Tax Revenue
11.7%
120.0
(BillionUS$)
*1US$=Rp13.000
9.7%
100.0
8.8%
8.4%
8.4%
60.0
88.2
75.4
8.0%
60.4
54.3
40.0
53.2
6.0%
51.8
4.0%
33.0
20.0
2.9
10.0%
82.9
70.7
6.3%
10.3%
95.1
8.4%
7.4%
80.0
10.1%
12.0%
3.4
3.9
4.4
5.1
5.9
8.3
7.3
9.1
11.1
-
2.0%
0.0%
2006
2007
2008
2009
2010
TotalExciseRevenue*
2011
TotalTaxRevenue
2012
2013
2014
2015
%Excise:TotalTax
*) Total excise revenue from Tobacco, Alcoholic Beverages, and Ethyl Alcohol
ü More than 95% of excise revenue comes from Tobacco products (dependency)
7
The Shares of Excise Revenue
2015
2006
3.16%
1.5%
0.4%
0.11%
TOBACCOPRODUCTS
ALCOHOLICBEVERAGES
ETHYLALCOHOL
98.1%
96.73%
Theshareofexciserevenuefromtobaccoslightlyreduce
butstilldominantuntillnow
8
International Best Practices on Tobacco Tax
Administration
Best Practices
1) Usetobaccoexcisetaxincreasestoachievethepublichealthgoal of
reducingthedeathanddiseasecausedbytobaccouse
2) Settobaccoexcisetaxlevelssothattheyaccountforatleast 70percentof
theretailpricesfortobaccoproducts
3) Relymoreonspecifictobaccoexcisesastheshareofexcisetaxes inretail
pricesincreases
4) Relymoreonexcisetaxesthanonimportduties
5) Whererevenueincreasesareagoal,relyontobaccotaxincreases to
achieverevenueincreases
6) Automaticallyadjustspecifictobaccotaxesforinflation
7) Increasetobaccotaxesbyenoughtoreducetheaffordability oftobacco
products
8) Includetobaccoexcisetaxincreasesaspartofacomprehensive strategy
toreducetobaccouse
9
International Best Practices on Tobacco Tax
Administration (2)
9) Useaportionoftobaccotaxrevenuestosupportothertobacco controland/or
healthpromotionefforts
10) Donotviewlowtaxesandpricesforsometobaccoproducts asa“pro-poor”policy
11) Donotallowconcernsabouttheregressivity ofhighertobacco taxestoprevent
tobaccotaxincreases
12) Donotallowconcernsaboutemploymentimpacttoprevent tobaccotaxincreases
13) Donotallowconcernsabouttheinflationaryimpactofhigher tobaccotaxesto
detertaxincreases
14) Adoptnewtechnologiestostrengthentobaccotaxadministration andminimize
taxavoidanceandevasion
15) Strengthentobaccotaxadministrators’capacitybylicensing allinvolvedintobacco
productmanufacturinganddistribution
16) Ensurecertain,swiftandseverepenaltiesforthosecaught engaginginillicittrade
intobaccoproducts
Source: WHO Technical Manual on Tobacco Tax Administration
10
Development of Excise Tax Policy on
Alcoholic Beverages
Excise Tax Structure on Alcoholic Beverages 2006 - 2014
Excise (IDRper Litre)
Category
Content
OfAlcohol
2014
2010
2006
Domestic
Production
Import
Excise (IDRper Litre)
Luxury
Tax
A1
s/d 1%
2.500
2.500
40%
A2
>1% s/d 5%
3.500
5.000
40%
B1
>5% s/d 15%
5.000
20.000
40%
B2
>15% s/d 20%
10.000
30.000
40%
C
>20% s/d 55%
26.000
50.000
75%
Cate
gory
Content
OfAlcohol
Type
A
≤5%
B
C
Excise (IDRper Litre)
Domestic
Production
Import
Domestic
Production
Import
Beer
11.000
11.000
13.000
13.000
>5% - ≤20%
Wine
30.000
40.000
33.000
44.000
>20%
Spirit
75.000
130.000
80.000
139.000
Policy
− Simplify the structure of excise tariff
− Eliminate the Luxury Tax => Excise in 2010
− Adjust the tariff (inflation/ economic growth)
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Priorities of Strategic Excise Policy
• Formulation of tariff policy;
Define specific excise rate increase with the intent of
increasing the selling price of the product, thereby
reducing the level of consumption.
• Extensification of goods subject to excise;
The Indonesian government is conducting feasibility
studies related to some types of items to be defined as
goods subject to excise.
12
Priority to Extend the New Excisable Goods
1
Fulfill the characteristics of excisable goods as stated in article 2 of Excise Law
(negative externalities)
2
3
Policy-making process involves the relevant ministries and stakeholders
4
Supported by Parliament & Public
5
6
High potential of state revenue
Harmonization with the other policies
(investment, business, industrial and labor)
Administrative feasibility aspects of excise collection
13
Strategic Excise Policy Priorities (2)
• Law enforcement;
Law enforcement against illegal trade of goods
subject to excise; use of fake excise stamps, without
excise stamps, and excise stamps not as intended.
This resulted in the avoidance of tax payments that
should be paid.
• Audit and Verification;
Effective audit and verification carried
companies based on risk management.
out
on
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Developing an Excise Roadmap
■ Reduce Ad hoc Excise Tariff Adjustment
■ Use excise tax increases to achieve the public health/environment goal
of reducing negative externality
■ Simpler is better
■ Automatic adjustment of specific excise taxes for inflation
■ Strengthen tobacco tax administrators’ capacity to monitor tobacco
product markets and evaluate the impact of excise increases
■ Adopt new technologies to strengthen excise administration and
minimize tax avoidance and evasion
A roadmap has the benefits of:
■ Agreed reform and implementation milestones; and
■ Effective timeframes and lead-in periods
15
Fiscal Policy Agency
Ministry of Finance of The Republic of Indonesia