Bisnis.com reports that Indonesia’s tobacco excise receipts are under pressure as consumers move to cheaper cigarettes. The shift, commonly described as downtrading, is occurring amid weaker purchasing power and differences in excise rates across product tiers. Customs says this change in the consumption mix challenges revenue even though excise rates were not raised this year.

The market share of Machine-Made Kretek Cigarettes (SKM) Group I, a major contributor to excise receipts, declined from 64% in 2018 to 62% in 2019, 53% in 2020, 49% in 2021, 46% in 2022, 35% in 2023, 30% in 2024 and 29% in 2025 through August 2026.

The number of SKM Group II producer factories increased from 288 in 2023 to 311 in 2024, 337 in 2025 and 370 during 2026 through the period covered by the data. At the same time, reported cigarette output fell from 73.37 billion sticks in 2023 to 62.26 billion in 2024 and 60.86 billion in 2025. The 2026 year-to-date figure cited was 51.09 billion sticks.

Netty Hartawati of the Directorate General of Customs and Excise said total tobacco-product output through September 2026 was 235.3 billion sticks, about 5.5% higher than 223 billion in the same period a year earlier. She said enforcement and oversight would continue to be strengthened to support compliance, fair competition and state revenue.

Tobacco excise collections reached Rp159.5 trillion by September, or 70.7% of the Rp225.7 trillion state budget target. Fajry Akbar, head of tax research at CITA, considered the roughly 70% realization relatively strong compared with the same point in 2023–2025 and projected year-end receipts could reach 101%–102% of target. He linked that assessment to the decision not to raise excise rates or retail prices. Fajry did not provide a projection for next year and identified purchasing power and inflation risks tied to geopolitics as challenges.

Yusuf Rendy Manilet, an economist at Core Indonesia, said January–September production was the highest since at least 2021, but higher volume was not translating into equivalent revenue growth. As consumers switch from Group I to Groups II and III, the excise collected per stick is lower.

Given Rp159.5 trillion collected through the third quarter, Yusuf calculated that about Rp66 trillion would be needed in the fourth quarter—an average Rp22 trillion per month—to meet the annual target. That is above the January–September monthly average of about Rp17.7 trillion. Early purchases of excise stamps before a new rate takes effect often support fourth-quarter receipts, but that boost may be weaker because the 2027 rate is set not to increase. The government projected annual receipts of Rp223.2 trillion, Rp2.5 trillion below target; Yusuf estimated Rp213–219 trillion, implying a Rp7–13 trillion shortfall.

For the medium term, Yusuf proposed gradually simplifying the excise structure and narrowing rate gaps between tiers, alongside consistent action against illicit cigarettes and a multi-year rate roadmap. Vid Adrison, a senior researcher at the University of Indonesia’s LPEM, also warned that adding a new tier could worsen downtrading if price gaps remain wide.