Types of Cigarettes in Indonesia

2. Types of Cigarettes in Indonesia SKT Sigaret Kretek Tangan Hand-Rolled Kretek Cigarette (usually no filter) SKM Sigaret Kretek Mesin Machine-Rolled Kretek Cigarette (usually filtered) SPM Sigaret Putih Mesin White Cigarette (tobacco only) (usually filtered)

4. Objectives of Cigarette Excise Taxation Central Government Revenues Improvements in Public Health Avoidance of Tax Regressivity Employment Preservation Small Business Promotion Reduction of Illegal Activities

8. In recent years, there is evidence that cigarette demand has become more elastic in Indonesia. This is consistent with the drop in real incomes due to economic crisis of 1997-98: addictive goods like cigarettes become more of a luxury rather than a necessity at lower incomes. It is also consistent with a linear demand specification, given the substantially higher real prices in recent years.

9. A linear demand specification is also more conservative in its implications for excise taxation: The estimated tax rate at which revenues are maximized is lower than would be inferred from a constant-elasticity specification. The estimated revenue gains from higher excise tax rates are lower than would be inferred from a constant-elasticity specification.

15. Tax Avoidance and Evasion Issues Large companies can set up smaller subsidiaries to take advantage of the lower tax rates on smaller companies. (Existing brands presumably cannot be subcontracted to smaller companies.) Companies that are large in one market (SKT, SKM, or SPM) can establish new firms in the other markets that are assigned a size based on their own sales, not those of the parent company.