Indonesia is the world’s fourth most populous state, and the fifth highest consumer of cigarettes, with 30% of the population smoking. The percentage of total government revenue provided by taxes on cigarettes is more than 7% - an enormous amount – and, not surprisingly, the government takes great pains to protect this revenue. The recent news of a raid that put paid to an illegal stamp  printing operation, which was the biggest bust in the history of Indonesian customs (see TSN July/August 2009) underlined, however, the task facing the country – with the operation alleged to have cost the state Rp 560 billion (US$509m) over a seven year period. In this case study we look at the efforts the government is putting into securing its stamps, and hence a major source of its revenue.

In Indonesia excise revenue from cigarettes and liquor accounts for an extremely high percentage of total excise revenue – 98%. Due to both increasing consumption of cigarettes over the past two decades and the level of success in collecting excise duty, it increased from 4.3% to 7.3% of total government income over the ten years from 1990 to 2000. 

Income is targeted to grow even further in years to come. The Customs and Excise Department of the Ministry of Finance collected Rs 40.8 trillion in 2007 and Rs 51 trillion in 2008. The figures for 2009 and 2010 are estimated to be Rs 54.54 trillion billion and Rs 57 trillion respectively (1 million Indonesian Rupiahs = c. US$105).  This is based not so much on predicted growth in production by the country’s 3,000-plus domestic producers – currently standing at around 240 billion cigarettes per annum- but by better enforcement and increases in excise duty.

Increased Duty
In early 2009 this went up by an average of 7% while a rise of 5% is expected in 2010. The level of excise duty depends on the classification of cigarettes. For machine-rolled cigarettes, for example, the duty represents 40% of the pack price, while for hand-rolled cigarettes, the rate is 4%. Of the 240 or so billion cigarettes of one form or another smoked in the country per year, the vast majority (85% or more) are kretek cigarettes, which combine tobacco with cloves and which are virtually unique to Indonesia. 

The country’s tax stamps are issued by the Directorate of Customs and Excise, part of the Department of Finance, and produced by the state security printer and papermaker Pura. They were first issued in the 1970s, their security originally relying on the base paper and security print features alone. Needless to say, as mass-produced items with a relatively high unit value, the stamps were vulnerable to forgery – particularly with the rapid advances in reprographic technology which made the task of quantifying losses by distinguishing counterfeit from genuine products extremely difficult. Hence the decision to upgrade the stamps in the mid-1990s with the introduction of a hologram, which has itself undergone successive upgrades as the technology has advanced.

Advanced Technology
The latest hologram – introduced in 2006 – incorporates a variety of different advanced techniques and effects for different levels of authentication. These include dynamic 2D/3D and kinetic effects, a coloured foil, partial demetallisation, laser-viewable optical code, hidden text and proprietary chemical taggant. It is also chemically sensitive to react to a reagent and contains a unique machine readable feature that can be detected only by Pura’s proprietary hand held ‘hologram reader’. Interestingly, in the aforementioned bust of the illegal stamp printing operation, the fakes looked identical to the genuine article, even down to the UV features. According to Director General of the Customs Directorate, Anwar Supriyadi, the only feature that had not been reproduced was the machine read component.

Up to 18 billion stamps for all tobacco products are now produced annually in a three-way partnership between three of Pura’s 24 divisions. The paper is supplied by PT Kertas Padalarang, the hologram by PT Pura Nusapersada and the printed stamp by Perum Peruri. 

The stamps are, according to Pura, recognised by the government as a highly effective and proven means of protecting and increasing its revenues, offering as they do a deterrent to counterfeiters and a strong recognition feature for government officials and customs officers to undertake a fast and easy verification of genuine cigarettes.  They need to be, given that only 800 of the 3,000 or so producers in the country ever buy excise stamps, and that counterfeiting is still estimated to result in result in losses of Rs 4 trillion ($474m) per year.



Quick Facts
Population: 235 million
GDP per capita: $3,900
Annual production of cigarette stamps: 18 billion
Year stamps introduced: 1970s
Tax authority: Directorate of Customs and Excise
Supplier: the Pura Group