Exclusive: Indonesia eyes decree on tobacco after bill runs into opposition

JAKARTA Indonesia’s government has proposed issuing a decree to govern the domestic tobacco industry, a move that could sharply raise cigarette output in the world’s fourth-most populous nation, after a bill outlining the changes was opposed by the health ministry and anti-smoking groups.

The latest proposal was mooted at a meeting 10 days ago between the trade minister, the law minister and senior parliamentarians, two people who attended told Reuters on condition of anonymity. The government has not given details of the meeting.

Government officials have proposed a ministerial decree as an alternative to the draft law, Oke Nurwan, director-general of foreign trade at the trade ministry, told Reuters, although he did not specify when the proposal was made.

Teten Masduki, the chief of staff for President Joko Widodo, declined to comment on the meeting and the proposal for a tobacco decree.

Indonesia is one of the world’s top producers of tobacco and has one of the heaviest rates of smoking in the world. Late last year, the country’s powerful parliament proposed a draft law covering production, distribution and excise taxes of tobacco, which it claimed would safeguard millions of jobs in the industry.

Among other provisions, the bill stipulated that manufacturers of tobacco products had to use locally sourced tobacco for at least 80 percent of production, while imports of ready-to-use cigarettes may be subject to an excise tax of 200 percent.

The country’s tobacco industry contributes almost 10 percent to government revenues through taxes.

The plan sparked an outcry from health groups and infighting between ministries. Critics say the proposal would sharply increase production of tobacco and most would be absorbed by local cigarette manufacturers, who would step up production.

The decree, proposed as a compromise, covers the absorption of local production, the setting of prices for farmers and some import restrictions, officials said. Compared to a law, it will give the government some discretion on implementation.

But it made no mention of the 200 percent excise tax on imported ready-to-use cigarettes laid out in the bill.

NO AGREEMENT YET

Parliament and the government have not yet reached an agreement on the decree, said Firman Subagyo, the parliament member who initiated the bill and who comes from Indonesia’s second-biggest party, Golkar.

Health Minister Nila Moeloek, who strongly opposed the tobacco bill, was a notable absentee from the March 20 meeting.

Asked why the health minister did not attend the meeting, Law Minister Yasonna Laoly said: “All the perspectives from all the ministries have been represented.”

A health ministry spokesman reiterated the minister’s opposition to the bill on Wednesday, but declined further comment on the meeting and the proposed ministerial decree.

Indonesia is the world’s fourth-biggest cigarette producer and is also a fast-growing market for major companies including Phillip Morris-controlled PT Hanjaya Mandala Sampoerna Tbk, Djarum Group and PT Gudang Garam Tbk.

Nearly two-thirds of men are smokers in Indonesia, a country of 250 million people where an average packet of cigarettes costs less than $2.

The country produced 269.2 billion cigarette sticks in 2015, a jump of 43.5 percent from 2010, according to data from research firm Euromonitor International. The market was last valued at 231.3 trillion rupiah ($17.3 billion).

Anti-tobacco activist Julius Ibrani criticised the government’s latest proposal to issue the ministerial decree, saying that health concerns have not been adequately represented in the discussions.

“Whether it’s a ministerial decree or a law, at the end of the day it will apply to society,” Ibrani said. “The problem is with the substance.”

(Additional reporting by Bernadette Christina Munthe, Gayatri Suroyo and Jakarta Newsroom; Editing by Ed Davies and Raju Gopalakrishnan)