The Contribution of Cigarette Tax in Improving Indonesia's Economic Growth

Topics: Household income in the United States, Better, Consumption Pages: 2 (619 words) Published: March 14, 2011
The Contribution of Cigarette Tax in Improving Indonesia's Economic Growth

Smoking is prohibited due to medical reasons; nevertheless, many countries still allow their people to smoke in certain areas, for example in Indonesia. This is due to the fact that by raising the cigarette excise duty by exactly 100 per cent, the country would acquire many advantages. It will create numerous new employment opportunities and even boost the workers' annual incomes. This is good for Indonesia's economic because eventually the country's Gross Domestic Product (GDP) will be increased. According to the latest research conducted by University of Indonesia, the government's income from cigarette duties would rise by 7 to 9 per cent.

The research shows that if the government increased the cigarette tax by 100 per cent, cigarette retail prices would increase by around 26 per cent and that cigarette companies would survive if the excise duty was increased from the current average of 31 per cent on factory prices. According to the research, the consume of cigarette would only decrease by 9 per cent. This very small number will not necessarily ruin the cigarette company. Citing the research, doubling the excise duty would lead to an increase in the country's GDP of Rp 335.35 billion. The increase in the country's GDP would make the business in the country in its best state and thus increase the development of our beloved country.

This year, the government expects the $373 billion economy to expand by 6.2 to 6.6 percent due to increasing domestic consumption and commodity exports. According to the 2005 National Socio Economic Survey, 7 out of 10 Indonesian households routinely allocated portions of their income for tobacco products. In addition, household expenditures on tobacco was much higher than on food items like fish, meat, eggs and milk, as well as vegetables and fruits. So clearly cigarette price is an essential part to the budget allocation. As household spending...
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