This policy brief was developed to demonstrate the negative impacts of the excise tax policy that grants special treatment to hand-rolled clove cigarettes by describing: (a) the definition and history of hand-rolled kretek cigarette; (b) the negative impacts on health and economic linked to hand-rolled kretek; (c) the lack of benefits that the hand-rolled kretek cigarette economy provides to workers and clove farmers; (d) schemes of excise tariff increase and simplification of the structure tobacco excise tax structure, as well as its transition process; and (e) the recommended fiscal policies that are pro-health and pro-economic for the people.

Around 30 documents were used to develop this policy brief, consisting of research papers, official reports from governmental and non-governmental institutions, and internal presentations from relevant stakeholders.

We found that the preferential treatment for hand-rolled kretek cigarette in the excise tax policy has resulted in numerous negative consequences for both public health and the economy.

Working in the hand-rolled kretek industry or cultivating cloves is not without economic and health challenges. Households that rely solely on income from hand-rolled kretek industry tend to earn less than those with income from other sectors. Additionally, working in hand-rolled kretek factories carries a high risk of occupational accidents. A similar situation is seen among clove-farming households, about one-third of which live below the poverty line.

We urge the government to reform the excise tax policy by: (a) simplifying the tobacco excise tax tariff structure gradually by prioritizing the simplification of hand-rolled kretek cigarettes excise tariffs into two tiers; (b) raising the tobacco excise tax and minimum price tariffs for all types of cigarettes significantly, with larger hikes for the cheapest products currently on the market, such as hand-rolled kretek cigarettes; (c) ensuring that price disparities between cigarette types remain moderate; and (d) transitioning affected sectors while taking socioeconomic conditions into account.