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BACKGROUND: Illicit cigarettes comprise more than 11% of tobacco consumption and 17%
of consumption in low- and middle-income countries. Illicit cigarettes, defined as
those that evade taxes, lower consumer prices, threaten national tobacco control efforts,
and reduce excise tax collection. METHODS: This paper measures the magnitude of illicit
cigarette consumption within Indonesia using two methods: the discrepancies between
legal cigarette sales and domestic consumption estimated from surveys, and discrepancies
between imports recorded by Indonesia and exports recorded by trade partners. Smuggling
plays a minor role in the availability of illicit cigarettes because Indonesians predominantly
consume kreteks, which are primarily manufactured in Indonesia. RESULTS: Looking at
the period from 1995 to 2013, illicit cigarettes first emerged in 2004. When no respondent
under-reporting is assumed, illicit consumption makes up 17% of the domestic market
in 2004, 9% in 2007, 11% in 2011, and 8% in 2013. Discrepancies in the trade data
indicate that Indonesia was a recipient of smuggled cigarettes for each year between
1995 and 2012. The value of this illicit trade ranges from less than $1 million to
nearly $50 million annually. Singapore, China, and Vietnam together accounted for
nearly two-thirds of trade discrepancies over the period. Tax losses due to illicit
consumption amount to between Rp 4.1 and 9.3 trillion rupiah, 4% to 13% of tobacco
excise revenue, in 2011 and 2013. CONCLUSIONS: Due to the predominance of kretek consumption
in Indonesia and Indonesia's status as the predominant producer of kreteks, illicit
domestic production is likely the most important source for illicit cigarettes, and
initiatives targeted to combat this illicit production carry the promise of the greatest
potential impact.
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