Enforcement of Illicit Cigarettes Increases Excise Revenue in Indonesia

The illicit cigarette trade poses a persistent threat to excise revenues and public policy objectives in Indonesia, where tobacco products contribute more than 96 per cent of total excise collection. The study investigated the influence of law enforcement on tobacco excise revenues in East Java, the country’s largest tobacco-producing and tax-contributing region. Using panel data from 2019 to 2023 at seven customs offices, a fixed effect regression model analysed the impact of illicit cigarette seizures. The study’s results showed a statistically significant and positive relationship, where an increase in confiscated cigarettes was associated with an estimated excise revenue gain of approximately IDR369,653.50 per statistical unit of increase in seizures. Enforcement plays a crucial fiscal role in supporting revenues and protecting legitimate markets. The study also highlights gaps in Indonesia’s alignment with the World Health Organization’s (WHO) Protocol to Eliminate the Illicit Trade in Tobacco Products. Policy recommendations include strengthening supply chain monitoring, adopting tracking systems, and enhancing cross-border cooperation.