Illicit Cigarettes in Indonesia are Not the Problem the Tobacco Industry Claim it to be

Illicit cigarettes are rare in Indonesia. Less than 2% of cigarettes packs collected in a recent national survey were illicit. Illicit trade has declined over time, continuing a trend described by previous research. These declines coincided with the largest increases in excise taxes and cigarette prices in Indonesia.

The low level of illicit trade is likely a function of market domination by kretek cigarettes which are unique to Indonesia, while the decline in illicit trade is likely a result of improved tax administration and enforcement, including consolidation of excise tax tiers and improvements in tax stamps.

The low levels of illicit trade and high levels of compliance should encourage further tax reforms, including tier consolidation and increases in excise taxes.

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