Robert Go, Jakarta – Some Indonesian cigarette manufacturers are dodging tax payments to the government to the tune of millions of dollars each year, said officials investigating the matter.

According to an as-yet-unpublished study conducted by the Finance Ministry and Diponegoro University in Semarang, Central Java, the scam involves dozens of popular brands and possibly hundreds of millions of sticks of kretek, or clove-based, cigarettes.

There are two ways in which crooks cheat Jakarta. Some sell cigarettes with fake tax stamps. Others use counterfeit packaging materials made to resemble those of legitimate brands, and simply sell their products without any proof of taxation.

As they do not pay taxes, these cheats can sell cigarettes much more cheaply than competitors, and their product lines become hugely popular with Indonesia's millions of poor smokers.

Investigators declined to release the names of the cigarette-makers involved, or estimates of how much damage the government is suffering because of their actions. But the schemes, according to one official, are costing Indonesia a substantial chunk of the 25.9 trillion rupiah it expects to gain from taxing cigarette sales this year.

An official said: "We think this is a huge problem, and after this study is presented to the Cabinet, there will be some changes in the way cigarette companies pay taxes in the future." No single company, however, has been prosecuted for this type of offence. Investigators are said to be continuing to gather evidence in various parts of the country, to get a better assessment of the scope of the practice.

In the meantime, government agencies, including the Customs and Excise Department, have been instructed to improve their monitoring procedures to catch manufacturers in the act of violating taxation procedures.

Mr Anggito Abimanyu, an aide to Finance Minister Boediono, confirmed to The Straits Times that the government had caught on to the scam and would reform existing regulations to improve revenue targets in 2004. A complicating factor for Jakarta, however, is alleged corruption within tax-collection offices and internal turf wars between different government agencies. A government source said: "We also need to investigate whether or not collection people are involved in the scams and have been paid off by manufacturers to look the other way."

Yet another dimension of the issue involves Indonesia's exploding unemployment problem and the fact that even crooked companies remain viable providers of jobs to millions of workers.

The Manpower Ministry recently reported that the number of jobless Indonesians is likely to break the 10-million ceiling this year, while another 30 million people are classified as underemployed and work unsteady hours during any given week.

Against this backdrop, the government source said: "These companies may be conducting illegal practices, but we are mindful that they provide employment to people. There are complications here, and we can't just shut them down."

Indonesian tobacco producers roll out about 240 billion sticks, 90 per cent of which are classified as kretek cigarettes, per year. They have complained, however, that government taxes are too high and regulations are choking the industry to death.