Impact of specific excise rate simplification on cigarette consumption and government revenue in Indonesia

Abstract

This study estimates the impact of excise tariff simplification on cigarette consumption and government revenue. In addition, the study compares the 'simplification' case with the 'no simplification' case. Several estimation models using unbalanced and sub-balanced panel data, random effect maximum likelihood estimation (MLE) and panel-corrected standard errors (PCSE) are explored to estimate the impact. The results indicate that tariff simplification has a greater impact on raising cigarette prices, reducing consumption, and increasing government revenue than regularly increased excise rates. The greatest impact can be seen in cigarettes produced by large companies and white cigarette machine-made product. The results also suggest that cigarette excise taxes are 'under-shifted' to consumers and that producers bear some of the tax burden.