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Tobacco excise tax policy in Indonesia: who does reap the benefits?

Author

Listed:
  • Dwi Budi Santoso

    (University of Brawijaya, Indonesia)

  • Angga Erlando

    (Airlangga University, Indonesia)

Abstract

In Indonesian tobacco, excise tax policy never decrease every year. As a result, the number of tobacco industries sharply declines, however the prevalence of tobacco smoking steadily increase since 1995. Therefore, this research aims to estimate the increase of tobacco excise tax and its impact on cigarette consumption, government revenue, and the possibility of cigarette sold illegally. There are two analytical model, Logit and Tobit. Logit model is used to estimate the impact of cigarette price towards the probability of household member to smoke or not, and Tobit model is used to estimate the impact of price change towards the amount of cigarette consumption. Tobit model is employed since it include non-smoker household, covering 40% of total household. The estimation is based on SUSENAS published on March 2017. The result suggests increasing cigarette prices does not lessen people desire to be smokers; indicating that most Indonesian consider cigarette as basic needs. Consequently, the increase of tobacco excise tax leads to the growth of government revenue and number of illegally sold cigarette. Therefore, it conclude that large-scale industries benefit the most, when this result is linked to the decrease of tobacco industries data. Meanwhile, Indonesian people may get the benefit, if the government revenue is appropriately allocated to stimulate economic and development.

Suggested Citation

  • Dwi Budi Santoso & Angga Erlando, 2020. "Tobacco excise tax policy in Indonesia: who does reap the benefits?," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(1), pages 1108-1121, September.
    • Handle: RePEc:ssi:jouesi:v:8:y:2020:i:1:p:1108-1121
    DOI: 10.9770/jesi.2020.8.1(74)
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    References listed on IDEAS

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    More about this item

    Keywords

    tobacco excise; tax policy; prevalence of tobacco smoking; Logit; Tobit;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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