Indonesia's New Fiscal Policies to Curb Imports and Support Exports

On Monday (09/12), the government of Indonesia outlined the long-awaited extension of its economic policy package that was released in August 2013. This extension involves new fiscal policies, aimed at reducing imports and supporting exports, that will be implemented at the start of 2014. An improving global economy in combination with the government's August package and yesterday's extension package is expected to reduce Indonesia's wide current account deficit to a sustainable level of below 3 percent of gross domestic product (GDP).

The two new regulations, which still need approval from the Ministry of Justice and Human Rights, involve the income tax on the import of durable consumer goods and import facilities for export purposes (KITE). Firstly, the income tax on 502 types of durable goods (such as motorcycles, smartphones, furniture and mobile phones) will be raised from 2.5 percent to 7.5 percent for all importers. Previously, importers with an importer identification number (API, Angka Pengenal Importir) provided by the Trade Ministry paid income tax of 2.5 percent, while companies without API paid 7.5 percent. Therefore, the new policy implies an end of the tax break of API-holders.

Secondly, the government will ease import facilities for export purposes (KITE), thereby making it easier for export-oriented manufacturing industries to import raw materials as well as capital goods. The government will remove value-added tax and the tax on luxury goods for imported goods. This aims to raise more revenue from the export sector by making the sector more competitive on the global market.

This calender year (January to October 2013), Indonesia's trade deficit has accumulated to USD $6.36 billion:

Indonesia's Trade Balance 2013 (in billion US Dollar):

2013                              Export                              Import
Month   Oil & Gas   Non Oil & Gas   Total   Oil & Gas
   Non Oil & Gas   Total
January       2,66          12,72   15,38       3,97          11,48   15,45
February       2,57          12,45   15,02       3,64          11,67   15,31
March       2,93          12,09   15,02       3,90          10,99   14,89
April       2,45          12,31   14,76       3,63          12,83   16,46
May       2,92          13,21   16,13       3,43          13,23   16,66
June       2,80          11,96   14,76       3,53          12,11   15,64
July       2,28          12,81   15,09       4,14          13,28   17,42
August       2,72          10,36   13,08       3,67           9,34   13,01
September       2,41          12,29   14,70       3,72          11,79   15,51
October       2,73          12,99   15,72       3,47          12,20   15,67
Jan-Oct      26,47         123,19  149,66       37,1          118,92  156,02

Source: Statistics Indonesia

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