The Impact of Multi-Tiered Specific Excise Tax Systems on the Creation of New Tobacco Brands in Indonesia: Public Health Implications

Steviana Pasca Sarjana and Vid Adrison

Journal of Tax Reform, 2024, vol. 10, issue 2, 397-416

Abstract: The manufacturing of new cigarette brands at low prices to exploit lower excise tax tiers poses a challenge to the intended objective of cigarette taxation, which is to reduce consumption for public health protection. This study aims to investigate the impact of a specific multi-tiered excise tax system on the creation of new brands. This study utilizes CK-1 data (application for ordering excise tape) from the Directorate General of Customs and Excise, Ministry of Finance (DJBC), as the authority overseeing cigarette excise taxes in Indonesia. The data consists of nine years of research observations, from 2012 to 2020, totaling 20,379 observations. The period used corresponds to the implementation of the multi-tiered specific cigarette excise tax system. Employing empirical analysis with Poisson regression, the study examines the count data of new brands. Dummy variables for cigarette production types and other relevant factors explaining the simplification policy of cigarette excise tax are included. The empirical analysis reveals a positive association between the implementation of a specific multi-tiered excise tax system and the creation of new cigarette brands. As the number of tiers in the excise tax system increases, so does the incentive for companies to introduce new brands. Furthermore, the analysis indicates that these new brands are typically priced lower, indicating a potential limitation of the specific multi-tiered excise tax system in reducing cigarette consumption. The findings suggest the consideration of a simpler and uniform cigarette excise tax system to address the challenges posed by the proliferation of low-priced new cigarette brands. Policy adjustments are crucial to ensure that excise taxes effectively align with public health objectives while maintaining government revenue. This study underscores the importance of refining taxation policies to mitigate negative health impacts on the public caused by increased cigarette consumption.

Keywords: tobacco excise tax; multi-tier tax system; new cigarette brands; tax avoidance; tax reform; public policy (search for similar items in EconPapers)
JEL-codes: H20 H22 H26 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:10:y:2024:i:2:p:397-416

DOI: 10.15826/jtr.2024.10.2.175

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