Responding to Increase in Cigarette Excise Tax, Manufacturers Will Raise Cigarette Prices

INDUSTRY.co.id - Jakarta - PT Gudang Garam Tbk (GGRM) cigarette producer will respond to the government's plan to raise cigarette taxes by increasing the price of its products.

"If the government realizes the intention, of course we will raise the selling price," said Director of PT Gudang Garam Tbk, Istata Siddharta in Jakarta, Tuesday (5/9/2017).

Gudang Garam posted a sales increase of 8.9% year on year to Rp40, 2 trillion in the first half of this year. The company's sales increase is inversely proportional to the industry's performance.

The company's overall production volume growth totaled 38.6 billion cigarettes in the first half of 2017, up 2.4 percent from 37.7 billion in the first half of last year. In contrast, the overall cigarette industry production volume decreased by 0.8% yoy to only 140.8 billion cigarettes

The negative growth continues the trend since 2015. Gudang Garam produces various types of cigarettes in handmade cigarette cigarettes, machine-made cigarette, and low tar nicotine cigarette.

The total cost of the company in the first semester reached Rp31, 8trilun. The highest cost component of Gudang Garam is the purchase of excise bands worth Rp24.26 trillion.

While the cost of purchasing raw materials only Rp6, 54 trillion and other expenditures Rp1, 01 trillion.

The components of tax and duty fees account for 76% of the total manufacturer cost. That figure is much higher than the composition of raw material costs by 21% of the total cost

Excise and VAT is the largest cost component in establishing cost of goods sold. The average tariff growth rate has always been double digit in the last two years.

As an illustration, the tariff of excise on each pack of hand-rolled cigarettes reached Rp3,660 in 2015. In 2016, the government increased the imposition of excise tariffs by 12.1% on the type of cigarette to Rp4.104 per pack, the SKT excise rate back up 8.1 % in 2017 to Rp4,438 per pack.

Meanwhile, the excise tax rate on machine clove cigarettes valued at Rp6,503 per pack in 2015. The rate was increased by 15.9% in 2016 to Rp7,537 per pack.

In 2017, SKM excise tariffs rose 10% to Rp8,293 on every pack of cigarettes.