JAKARTA, thekabarnews.com—PT Gudang Garam Tbk (GGRM) has outlined how cigarette excise and competition from cheaper illegal products are narrowing its pricing options. The company faces declining sales volumes in Indonesia.

Gudang Garam Director Heru Budiman presented a simplified calculation involving a 12-stick pack of machine-made kretek cigarettes (SKM). He did this during Public Expose Live 2026 on Thursday, September 10.

“For a 12-stick pack of SKM cigarettes, the excise we pay is Rp19,000. Today, GGRM sells the product for Rp26,000. This means we collect Rp26,000 from the consumer and remit Rp19,000 in excise,” Heru said.

Under that illustration, the company retains about Rp7,000 as sales proceeds after excise. However, the amount does not represent profit because Gudang Garam must still cover tobacco, cloves, production, labor and distribution costs.

The Rp19,000 figure represents management’s illustration for the product discussed, rather than a standard levy for every 12-stick SKM pack. Indonesia applies different tobacco excise rates according to cigarette type and producer category.

The government also imposes a regional cigarette tax equal to 10 percent of the applicable excise. This is according to Finance Ministry Regulation No. 26/2026.

Heru said legal manufacturers face a difficult pricing decision. A substantial price increase may encourage consumers to trade down to cheaper brands. However, holding prices down leaves manufacturers with less room to cover their expenses.

Illegal cigarettes intensify that pressure because operators who evade excise can offer much lower prices.

Heru illustrated that an illicit pack sold for Rp12,000 could generate Rp12,000 in sales proceeds before other costs. This is because its seller pays no excise. However, that amount should not be interpreted as profit.

The company’s latest results show the commercial pressure behind the argument.

Gudang Garam sold 20.5 billion cigarettes in the first half of 2026, down 13.6 percent from 23.7 billion cigarettes during the same period in 2025. Revenue declined 7.2 percent to Rp41.18 trillion from Rp44.37 trillion, according to the company figures.

Despite lower revenue, Gudang Garam recorded net profit of approximately Rp2.98 trillion, compared with Rp117.16 billion a year earlier.

Lower cost of revenue and improved selling prices supported the increase. This shows why the Rp7,000 remainder in Heru’s per-pack illustration cannot serve as a direct measure of profit.

Illegal cigarette enforcement has also increased. Indonesia’s Customs and Excise Directorate conducted 3,851 enforcement actions and seized 422 million illicit cigarettes from January through March 2026. This is according to a Finance Ministry economic report.

Gudang Garam’s figures illustrate how excise policy, consumer purchasing power and illicit trade jointly shape competition in Indonesia’s cigarette market. What is the issue for legal producers? To keep costs viable without pushing consumers to cheaper options