Excise Simplification to Address Downtrading: Towards a More Effective Tobacco Tax Policy in Indonesia

Indonesia’s tobacco excise policy faces persistent challenges that indicate structural weaknesses rather than temporary or cyclical problems. Continued downtrading represents a key policy challenge, whereby repeated excise increases translate into wider price gaps, declining high-tier revenue and rising illicit cigarette risks within a fragmented excise structure. This study aims to assess these challenges and identify policy pathways for more effective excise reform. Using a qualitative case study approach guided by the Multiple Streams Framework, the analysis examines tobacco excise developments and policy dynamics between 2017 and 2025. The findings show that tiered excise structures facilitate substitution towards cheaper and illicit products, thereby undermining public health objectives, fiscal performance and market integrity. This study contributes novel insights by framing downtrading as a structural policy failure and identifying a credible reform window during the Rencana Pembangunan Jangka Menengah Nasional 2025–2029 (the National Medium-Term Development Plan outlining Indonesia’s five-year strategic priorities, including fiscal and public health objectives). It proposes progressive excise simplification embedded within a broader governance framework that integrates enforcement strengthening, industrial adjustment and labour transition safeguards.