2017年-世界发展银行全球_The_Economics_of_Tobacco_Taxation_and_Employment_in_Indonesia_72页_1mb

Summary of "The Economics of Tobacco Taxation and Employment in Indonesia"

Core Content

This report examines the economic and employment impacts of tobacco excise tax reforms in Indonesia, focusing on the potential effects of increasing cigarette taxes and simplifying the tax structure. It is based on data from the Central Bureau of Statistics and complements findings from the World Bank/ACS Indonesia Tobacco Studies.

Main Viewpoints

• Complex Tax Structure: Indonesia has one of the most complex cigarette excise tax structures in the world, with 12 tiers based on manufacturer type, production volume, and retail price. This structure is designed to protect small-scale hand-rolled kretek (SKT) firms and their workers.

• Employment Impact: Tobacco manufacturing contributes minimally to overall employment (0.60%) and only 5.3% to the manufacturing sector. However, employment is highly concentrated in Central Java, East Java, and West Nusa Tenggara, where about 94% of tobacco manufacturing workers are located.

• Worker Characteristics: Most tobacco sector workers are female (66%) and unskilled, with an average of 8.22 years of schooling. These workers are heavily reliant on tobacco employment, with 60% of household income coming from it, and only 9% of households have a female as the primary income earner.

• Productivity: The productivity of tobacco sector workers is lower than that of workers in comparable sectors such as food and textile. A typical worker in medium and large tobacco firms produces IDR 104 million annually, compared to IDR 265 million in the food and drink sector and IDR 300 million in the textile sector.

• Tax Increase Simulation: Raising cigarette taxes by an average of 47% and simplifying the tax structure to 6 tiers would reduce cigarette demand by 10.4%, increase government revenue by 8.4%, and lead to a 9.13% reduction in gross employment in the tobacco manufacturing sector, equivalent to 32,132 job losses, primarily in the SKT industry (24,710 fewer jobs).

• Net Employment Effects: While the gross employment impact is limited, the net effect may be positive due to job creation in other sectors as consumers shift spending. Studies suggest that a 25–100% tax increase could result in net job creation ranging from 84,340 to 281,135 jobs.

• Health and Economic Costs: Smoking is a major contributor to noncommunicable diseases (NCDs), which account for 71% of all deaths in Indonesia. Tobacco use also contributes to communicable diseases such as tuberculosis. The economic burden of smoking is significant, with costs equivalent to 1.8% of global GDP in 2012 and up to 40% in low- and middle-income countries.

• Policy Recommendations:

  • Provide immediate income support to vulnerable groups, such as less-educated, older, and primary income-earning tobacco workers.
  • Use part of the additional tax revenue for re-skilling and redeployment programs for affected workers.
  • Improve supply chains and value chains for alternative crops in tobacco-growing regions to support farmers transitioning away from tobacco.
  • Facilitate access to credit for tobacco farmers to help them cultivate other crops or develop non-agricultural enterprises.
  • Specifically support clove farmers in less profitable areas by identifying and promoting viable alternatives.

Key Information

• Tax Reform Objectives: To reduce smoking prevalence and increase tax revenues.
• Estimated Tax Impact: A 47% tax increase would lead to a 10.4% reduction in cigarette demand and an 8.4% increase in government revenue.
• Employment Reduction: The reform is expected to reduce tobacco manufacturing jobs by 4.79% and SKT industry jobs by 8.60%.
• Consumption Reduction: Cigarette consumption is predicted to drop by 36 billion sticks.
• Revenue Gain: Government revenue could increase by IDR 12,875 trillion.
• Job Losses: 32,132 jobs are estimated to be lost in the tobacco manufacturing sector.
• Health Impacts: Smoking is responsible for significant health issues and mortality, with NCDs being the leading cause of death in Indonesia.
• Data Sources: Central Bureau of Statistics, World Bank/ACS surveys, and WHO reports.

Structure

• Executive Summary: Overview of the report's purpose and key findings.
• Acknowledgments: Recognition of contributors and supporting organizations.
• Table of Contents: Outline of the report's sections.
• List of Figures and Tables: Summary of visual and tabular data used.
• Introduction: Contextual background on smoking and its impact in Indonesia.
• The Economics of Tobacco Taxation:
  • 2.1 Tobacco Consumption, Health Outcomes, and Economic Costs
  • 2.2 Tobacco Taxes and Tobacco Consumption
  • 2.3 Tobacco Taxation and Tax Revenues
  • 2.4 Employment Impacts of Tobacco Taxation
• Cigarette Tax Policies in Indonesia: Overview of current and proposed tax reforms.
• Employment in the Indonesian Tobacco Sector: Analysis of employment trends, worker characteristics, and regional distribution.
• Simulations on the Effects of Raising Cigarette Taxes on Employment: Quantitative analysis of tax reforms and their impact on employment.
• Conclusion: Summary of findings and policy recommendations.

Conclusion

The report concludes that while tobacco tax reforms may lead to a reduction in employment in the manufacturing sector, the net effect could be positive due to job creation in other sectors. It recommends a balanced approach that includes both tax reform and support mechanisms to protect the livelihoods of affected workers and farmers.