Tobacco excise tax policy in Indonesia: who does reap the benefits?

Dwi Budi Santoso () and Angga Erlando ()
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Dwi Budi Santoso: University of Brawijaya, Indonesia
Angga Erlando: Airlangga University, Indonesia

Entrepreneurship and Sustainability Issues, 2020, vol. 8, issue 1, 1108-1121

Abstract: In Indonesian tobacco, excise tax policy never decrease every year. As a result, the number of tobacco industries sharply declines, however the prevalence of tobacco smoking steadily increase since 1995. Therefore, this research aims to estimate the increase of tobacco excise tax and its impact on cigarette consumption, government revenue, and the possibility of cigarette sold illegally. There are two analytical model, Logit and Tobit. Logit model is used to estimate the impact of cigarette price towards the probability of household member to smoke or not, and Tobit model is used to estimate the impact of price change towards the amount of cigarette consumption. Tobit model is employed since it include non-smoker household, covering 40% of total household. The estimation is based on SUSENAS published on March 2017. The result suggests increasing cigarette prices does not lessen people desire to be smokers; indicating that most Indonesian consider cigarette as basic needs. Consequently, the increase of tobacco excise tax leads to the growth of government revenue and number of illegally sold cigarette. Therefore, it conclude that large-scale industries benefit the most, when this result is linked to the decrease of tobacco industries data. Meanwhile, Indonesian people may get the benefit, if the government revenue is appropriately allocated to stimulate economic and development.

Keywords: tobacco excise; tax policy; prevalence of tobacco smoking; Logit; Tobit (search for similar items in EconPapers)
JEL-codes: D10 D40 H20 L10 L20 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:ssi:jouesi:v:8:y:2020:i:1:p:1108-1121

DOI: 10.9770/jesi.2020.8.1(74)

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