Tax hike may put dampener on cigarette sales in Indonesia

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JAKARTA--Indonesians are likely to be thinking twice about puffing away after the government set a target to increase tax revenue this year.

Total domestic cigarette consumption will decline by about 30%, predicts Lakshmi K. Tantya, brand manager of British American Tobacco Indonesia. She says high-end brands are likely to see sales fizzle, but others, including the popular clove cigarettes, will gain from their losses.

"The premium segment of cigarettes will suffer most from the increase in taxes, while the medium and economy segments will increase their market segments because smokers of premium-class cigarettes may opt for them," Ms. Tantya says.

Even in the smokers' paradise of Indonesia, where it is considered a social necessity for men to smoke, Ms. Tantya says consumers are becoming more sensitive to the prices of what they light up.

"In the past, they might have given up their favorite brands only if it increased in price by 50% or more. But along with the changing times, they are now quitting their favorites if they increase by 40%, or even as little as 10%," she adds.

The government is gunning for a 19.9% increase in value-added tax in the upcoming fiscal year.

Ms. Tantya says BAT - which produces Lucky Strike, Ardath, Commodore, Escort and the newly launched Pall Mall cigarette brands in Indonesia - will have its work cut out in battling the economic crisis.

However, she says the company remains optimistic about sales because BAT's brands are attuned to particular market segments.

"Commodore excels in Sumatra and Escort in rural areas, while Pall Mall is planned as an option for those quitting the more expensive Lucky Strike," she says.

Copyright January 1999, Crain Communications Inc.

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