Direktorat Jenderal Bea dan Cukai

<p>This paper will examine the economics of market competition and firm equilibrium of Sigaret Kretek Tangan (SKT) in Indonesia.&#160; It established a model to show the equilibrium of a firm&#8217;s profit maximization. The model could theoretically explain the empirical literature suggesting that cigarette taxes in Indonesia are under-shifted. Technically, the tax pass-through is approved by the complex tiered tax system. Under tax increases, firms&#8217; ability to pass the tax on their prices depends on the ratio of price sensitivity between their brands and competitors. &#160;The tax rise will also reduce productivity, which serves the purpose of the excise tax policy.</p>