2017年-世界发展银行全球_The_Economics_of_Tobacco_Taxation_and_Employment_in_Indonesia___Policy_Note_16页_432kb

Summary of The Economics of Tobacco Taxation and Employment in Indonesia

Core Content

This policy note analyzes the economic impact of tobacco excise tax reform in Indonesia, focusing on its effects on employment and household income in the tobacco and clove sectors. It evaluates the current state of the tobacco industry, the potential consequences of tax increases, and policy recommendations to mitigate negative impacts on workers and farmers.

Main Findings

1. Employment Contribution of the Tobacco Sector

• Tobacco manufacturing accounts for 0.60% of total economy-wide employment and 5.3% of manufacturing sector employment, which is relatively low compared to other sectors like food (27.43%), garment (11.43%), and textile (7.90%).
• The sector is heavily concentrated in East and Central Java (76%) and West Nusa Tenggara (18%).
• In some districts, such as Kudus, Temanggung, and Kediri, tobacco employment accounts for over 25% of local employment.

2. Income Dependency of Tobacco and Clove Farmers

• Most tobacco farming households derive less than 50% of their income from tobacco, with three-quarters of them earning less than 50%.
• Clove farming households typically earn less than 20% of their total income from clove cultivation, with less than a quarter earning more than 50%.
• Tobacco and clove farming are not profitable for most households. Even when considering non-labor costs, tobacco farmers spend more on cultivation than they earn, and clove farmers lose an average of $2 per kilogram of cloves.

3. Impact of Tax Reform on Employment and Revenue

• Raising cigarette taxes by 47% and simplifying the tax structure to 6 tiers would:
  • Reduce cigarette demand by 10.4%
  • Increase government revenue by 8.4%
  • Reduce gross employment in the tobacco manufacturing sector by 9.13%, equivalent to 32,132 jobs (with 24,710 jobs lost in the handmade kretek industry).
• The total income loss from the reduction in employment in the handmade kretek industry is 1.4% of the revenue gain from the tax increase, amounting to Rp 182 billion.

4. Net Job Creation Potential

• While the gross employment effect of the tax reform is negative, net job creation is likely due to consumer spending shifts to other goods and services.
• Previous studies suggest that tax increases of 25–100% could lead to 84,340 to 281,135 net job creation in Indonesia.

Key Policy Recommendations

For Kretek Hand-rollers

• Income support should be provided to vulnerable workers (less educated, older, and primary contributors to household income) with less than 2% of the tax revenue gain.
• Re-training and redeployment programs should be implemented to help laid-off workers transition to alternative employment.
• Alternative employment opportunities should be identified and supported in affected regions to facilitate smoother transitions.

For Tobacco and Clove Farmers

• Improve supply chains and value chains for other goods in tobacco- and clove-growing areas to help farmers shift to more profitable crops.
• Facilitate access to credit for tobacco farmers to enable them to cultivate other crops or develop non-agricultural enterprises.
• Enhance educational opportunities and provide extension services for non-tobacco/non-clove crops and agricultural management to support the transition to alternative livelihoods.

Conclusion

The proposed tax reform is a win-win policy as it would:

• Reduce tobacco use and associated health costs.
• Generate additional government revenue.
• More than compensate for the income loss in the kretek industry through net job creation and economic diversification.

This reform, however, requires careful planning and support mechanisms to ensure that the negative impacts on livelihoods are minimized.