How hot is the Indonesian e-cigarette market
One of them is the potential of its new tobacco consumer market; as of September 2020, Indonesia's population reached 262 million, the world's fourth most populous country. Indonesia's smoking population reached 70.2 million people, accounting for 34% of the total population, "the rate of smokers" ranked first in the world. In terms of e-cigarettes, electronic atomized products entered Indonesia in 2010, and began to enter a high growth rate in 2014. Relevant data show that the market value of e-atomization in Indonesia reached $239 million in 2021, and is expected to continue to achieve potential growth in the period 2020-26.
Indonesia on July 1, 2018 its taxation of e-cigarettes, recognizing their legal status and requiring only an application for a sales license. In particular, e-cigarettes containing nicotine oil are considered "other processed tobacco" or "tobacco extracts and flavors" products and are subject to a 57% excise tax, while e-atomizer products such as hosts, atomizers, and nicotine-free oils are considered consumer products. In comparison, the average excise tax rate for traditional tobacco products in the region is 23%; this is not unrelated to the strength of the tobacco lobby in Indonesia.
Second, Indonesia's tariffs are low and the policy is tilted; Chinese e-cigarette exports to Indonesia do not need to pay export tariffs; and the Regional Comprehensive Economic Partnership Agreement (RCEP), which was officially signed on November 15, 2020 and came into effect on January 1 this year, is an important part of the "commitment to reduce to zero tariffs within ten years". According to the Ministry of Commerce website data at the time, the seven countries that can sell e-cigarettes tariffs were 30% in Vietnam, 24% in South Korea, 10% in Indonesia, 5% in Malaysia, 5% in Laos, 3.4% in Japan, and 3% in the Philippines.
This is also reflected in Indonesia's support for the e-cigarette industry. According to the news, Indonesia has planned a large electronic cigarette industrial park and invited some Chinese companies to move in. Some time ago, Indonesia will raise the news of the electronic cigarette tax rate, the relevant practitioners believe that this move is to promote new tobacco companies to build local factories with and purchase local tobacco oil to achieve a win-win situation.
Third, Indonesia's e-cigarette industry is currently in a weak regulatory state; Indonesia is the only country in Southeast Asia that allows television and media to publish tobacco advertising; data show that of all the countries that share e-cigarette content on Instagram, Indonesia is the second in number; and e-cigarettes have not been "disconnected", and its e-commerce sales ratio once reached 35.3%.
Therefore, even if the excise tax rate is not low, Indonesia's e-cigarette market size is still growing at a CAGR of 34.5% from 2016-19. According to the Indonesian Ministry of Industry 2020 data, Indonesia has as many as 150 e-cigarette distributors or importers, 300 vape oil factories, 100 equipment and accessory companies, 5,000 retail stores, and 18,677 types of vape oils on sale.
Fourth, driven by multinational tobacco companies; British American Tobacco acquired 85% of PT Bentoel Internasional Investama Tbk, the fourth largest cigarette manufacturer in Indonesia, for $494 million in June 2009, and has since begun to invest more and more in Indonesia (such as sending talented Indonesian employees to other country offices to gain experience in key roles). As of 2019, British American Tobacco's Indonesian business unit has approximately 6,000 employees, with operations in tobacco farming, cigarette production, marketing and distribution, and has become the largest contributor to the British American Tobacco Group's global driver brands (Dunhill and Goodwill).
Filmore International, for its part, acquired a majority stake in Zambalin in 2005 for $5.2 billion and has since invested a further $330 million to boost Zambalin's growth. According to the Jakarta Post in 2006, one year after its acquisition by Fimo International, SampoLin saw a 19% increase in net income, a 20% increase in cigarette sales, and an increase in market share of up to 2.8% in Indonesia. In addition, Nippon Tobacco International also acquired an Indonesian clove cigarette manufacturer and its distributor for $677 million in 2017, thereby expanding the group's market share in Indonesia.
Indonesia's attraction to multinational tobacco companies is not unrelated to its complex tax laws. A previous report released by the World Bank showed that more than half of Indonesia's tobacco industry is small-scale factories, relying heavily on hand-rolling. In order to ensure the interests of small-scale factories to a certain extent, Indonesia has developed a more advantageous tax advantage for small-scale factories, which has resulted in a win-win model of large multinational tobacco companies signing contracts with small factories to enjoy tax breaks and small factories adding a large number of jobs.
The successive entry of various multinational tobacco companies has also formed a certain driving effect and cluster effect, making Indonesia a bridgehead for more multinational tobacco companies to enter Southeast Asia and even the entire Asian market.