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An industry association has warned of mass layoffs if the
government goes through with a plan to increase the retail price of
cigarettes in March and introduce a new tax on cigarettes in July.
"The price increase will have an adverse effect on many of the small
and medium companies," Ismanu Sumiran, chairman of the Indonesian
Cigarette Producers Association (GAPPRI), told reporters in Jakarta on
Friday after meeting with Industry Minister Fahmi Idris.
He said only six of the 4,412 cigarette manufacturers in Indonesia
could be classified as large. Sixteen others are medium sized and the
rest are small businesses, but they employ millions of workers.
"If the government insists on imposing special charges on cigarettes,
all the small sized manufacturers will have to shut down due to their
inability to compete with the big industries," said Ismanu, who was
accompanied by several members of the House of Representatives and
officials from Central and East Java.
A 2006 Finance Ministry decree stipulates that the retail price of
cigarette will be increased by 7 percent on March 1, 2007. A special
tax on cigarettes will be imposed beginning July 2007.
The tax is a three-tiered one, with the level of tax a company pays
depending on its annual production.
"Every year we have to deal with a similar tax `shock' all over again,"
he said.
The government has targeted Rp 42.03 trillion (about US$4.6 billion) in
revenue from tobacco taxes this year, a 10 percent increase from the Rp
38.62 trillion collected in 2006.
"Most of the (cigarette companies) have rejected the special charge
which will be imposed beginning in July 2007," Industry Minister Fahmi
Idris told reporters after the meeting.
He said the members of the House who attended the meeting asked the
government not to hamper economic development through overtaxation.
"Taxes should encourage industry as well as increase the state budget,"
Fahmi said.
He said the cigarette industry should be nurtured and developed because
it employs so many people.
Fahmi said all the suggestions tabled at the meeting would be discussed
with the Finance Ministry.
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