What Cigarette Tax Is
Cigarette tax is a levy imposed on cigarette excise. It is a regional (sub-national) tax whose receipts belong to provincial governments and are further shared with districts and cities within each province. Because cigarettes are excisable goods, cigarette tax stacks on top of excise: cigarette consumers pay two layers of state levy in a single transaction, the excise itself and a 10 percent cigarette tax on that excise.
Although they are collected together administratively, the two levies have different recipients and purposes. Excise flows to the central government treasury, while cigarette tax flows to regional treasuries with mandatory earmarking for health. This dual structure makes cigarette tax both a funding instrument for regional health services and a price-signal reinforcing tobacco consumption control.
In many regions, cigarette tax is among the most stable revenue sources. Because it is collected alongside excise and distributed proportionally by population, the distribution is relatively even and does not depend on the presence of cigarette factories in the territory.
Legal Basis
The primary legal basis is Law Number 1 of 2022 on Financial Relations between the Central and Regional Governments (UU HKPD). Article 36 of UU HKPD sets the cigarette tax rate at 10 percent of cigarette excise. Article 85 paragraph (4) regulates the 70:30 revenue-sharing scheme between districts or cities and provinces.
Technical procedures are governed by Minister of Finance Regulation Number 26 of 2026 (PMK 26/2026) on the Procedures for the Collection, Withholding, and Remittance of Cigarette Tax, effective 12 May 2026. It replaces PMK 143/2023 and adds the requirement that regional governments allocate at least 50 percent of their share as earmarked spending, with 75 percent of that earmark (37.5 percent of the total) contributing to the National Health Insurance Program (Article 4 paragraph 1, PMK 26/2026).
At the law level, Law Number 39 of 2007 on Excise and its amendments is also relevant because the cigarette tax object is anchored to the cigarette excise governed by the Excise Law. Government Regulation Number 35 of 2023 on general provisions of regional taxes and levies also serves as administrative reference for regional governments managing cigarette tax revenue.
Object and Subject of Cigarette Tax
Cigarette tax objects cover machine-rolled cigarettes (sigaret), cigars, leaf cigarettes, and other forms of cigarettes subject to cigarette excise. PMK 26/2026 confirms that electronic cigarettes (vape, both open- and closed-system) fall within the category of other forms of cigarettes, so they are subject to 10 percent cigarette tax on their excise.
Other processed tobacco products such as shredded tobacco (tembakau iris), molasses tobacco (for shisha), snuff (tembakau hirup), and chewing tobacco are excluded from cigarette tax objects, even though some still carry tobacco excise. This exclusion matters for importers of non-cigarette tobacco products to avoid over-collection.
The subject of cigarette tax is the end consumer. However, the legal obligation to remit lies with cigarette manufacturers and importers holding a Taxable Goods Entrepreneur Identification Number (NPPBKC). This is a withholding mechanism: producers collect the tax from consumers through the price mechanism and remit it to Customs and Excise.
Legally, producers and importers act as collector and remitter, not bearer. The actual economic burden falls on consumers via the cigarette retail price that already includes excise and cigarette tax.
Collection Mechanism
Cigarette tax uses a self-assessment mechanism. Manufacturers and importers compute their own tax due based on the excise they must pay. The calculation is simple: excise amount multiplied by 10 percent.
The Directorate General of Customs and Excise (DJBC) collects cigarette tax simultaneously with excise settlement, whether through excise band orders or electronic excise payment. After receipts arrive at the state treasury, DJBC and the Ministry of Finance forward them to provincial regional general treasury accounts each quarter, allocated proportionally by provincial population.
At the provincial level, 70 percent must be shared with the districts and cities in the province. The remaining 30 percent stays with the province (Article 85 paragraph 4, UU HKPD). Allocation among districts and cities is proportional, based at minimum on population.
This process proceeds without direct regional intervention in collection. Regional governments receive funds that have already been allocated by formula, then bear the obligation to allocate spending consistent with PMK 26/2026.
Rate and Thresholds
The cigarette tax rate is single-tier: 10 percent of cigarette excise. There is no progressive rate, no threshold, and no dependency on cigarette retail prices.
A simple illustration: if a cigarette factory orders excise bands with a total excise value of IDR 1 billion, the cigarette tax payable is IDR 1 billion multiplied by 10 percent, or IDR 100 million. The cigarette tax settlement is made together with the IDR 1 billion excise settlement.
Because the rate follows excise, any increase in cigarette excise tariffs automatically raises the cigarette tax collected. This is why cigarette excise and cigarette tax policy are often analysed together. Annual cigarette excise tariff adjustments set by the relevant Minister of Finance Regulation directly shift the cigarette tax flow to regions.
For electronic cigarettes, the excise tariff differs from conventional cigarettes, but the cigarette tax rate remains 10 percent of the applicable excise. The higher the e-cigarette excise, the larger the cigarette tax collected on that product.
How to File and Pay
For cigarette manufacturers and importers, there is no separate cigarette tax filing with the Directorate General of Taxes (DJP). Remittance happens to Customs and Excise together with excise settlement, and the collection document is bundled into the excise document. The excise payment receipt also serves as proof of cigarette tax collection.
For regional governments, cigarette tax flows into the regional treasury through a transfer from the Ministry of Finance. Regional governments do not collect directly from producers; their role is to record receipts, budget their use in line with PMK 26/2026 earmarking, and report realisation back to the central government.
End consumers file nothing. Cigarette tax is already embedded in the cigarette retail price. In this respect cigarette tax is an indirect tax, unlike income tax which requires a tax return.
Reporting obligations on the regional side take the form of cigarette tax allocation realisation reports embedded in the regional budget (APBD) and Regional Government Financial Report (LKPD). These reports underpin the central government's compliance assessment regarding the JKN earmark.
Revenue Allocation: Earmarking and JKN
Allocation rules are the most important element of PMK 26/2026. Regional governments, both provincial and district or city, must allocate at least 50 percent of their share of cigarette tax revenue to earmarked activities.
Within that 50 percent earmark, the mandatory composition is as follows. First, at least 75 percent of the earmark (37.5 percent of total receipts) must contribute to the National Health Insurance Program. Second, at least 7.5 percent of total receipts goes to other health services beyond JKN, such as health promotion and disease prevention related to tobacco use. Third, at most 5 percent of total receipts can fund excise law enforcement against illegal cigarettes.
If a regional government fails its JKN contribution obligation, the central government may deduct the amount directly from regional cigarette tax funds and route it to BPJS Health. This clause is newly explicit in PMK 26/2026; PMK 143/2023 lacked clear legal basis for automatic deduction.
The policy logic is that revenue from consumption with adverse health effects (cigarettes) should fund services that address its health impact. The approach aligns with the Pigouvian taxation principle widely applied in other jurisdictions for health-risky products.
Worked Examples
Province A receives IDR 500 billion in cigarette tax in 2026. Per Article 85 paragraph 4 UU HKPD, 70 percent or IDR 350 billion must be shared with districts and cities in Province A. The remaining IDR 150 billion belongs to the province.
For the IDR 150 billion provincial share, the minimum allocation under PMK 26/2026 is as follows. IDR 75 billion (50 percent) must be earmarked. Within it, IDR 56.25 billion (37.5 percent of total) goes as JKN contribution, IDR 11.25 billion (7.5 percent of total) for other health services, and at most IDR 7.5 billion (5 percent) for excise enforcement. The remaining IDR 75 billion may be budgeted for activities with no special earmark.
Districts and cities receiving from the IDR 350 billion district-city share must follow the same earmark composition for their respective receipts. If District X receives IDR 40 billion under the sharing scheme, IDR 15 billion (37.5 percent) must be allocated as JKN contribution.
From the producer side: cigarette factory B orders monthly excise bands valued at IDR 2 billion in excise. Cigarette tax payable is IDR 200 million (10 percent of excise), paid together with the IDR 2 billion excise settlement. Total payment to the state for that order cycle is IDR 2.2 billion.
Implications and Practical Notes
For regional budget planners, PMK 26/2026 forces alignment of RKPD, KUA-PPAS, and APBD documents from 2027 onward to reflect the new earmark composition. Regions previously using cigarette tax for non-health line items need to reallocate.
For cigarette producers and importers, no significant change in collection procedure. What matters is adjusting internal financial systems so that excise settlement documents carry accurate cigarette tax information.
For consumers, no administrative action is required, but understanding cigarette price composition supports fiscal literacy: of each cigarette purchased, part of the price is central excise and 10 percent on top of that excise is regional cigarette tax.