Plans to Raise Import Tax for Certain Goods Meets Resistance
The Indonesian government is planning to impose measures in order to curtail imports into Indonesia (in an effort to improve the trade balance, current account balance, and strengthen the rupiah exchange rate). One measure that is currently being prepared by the Finance Ministry is higher import tariffs for certain goods. Another measure that is being studied is reducing the number of entrance points for imports.
Through a new Finance Ministry Regulation, Indonesia plans to raise the import tariff to 7.5 percent for those import goods that are actually available (and manufactured) at home and are not categorized as "strategic products". So far the Indonesian government has identified 500 types of goods that could become subject to a higher import tariff as their counterparts are available at home.
Currently, based on Article 22 regarding Income Tax on Imports (PPh Pasal 22 impor), the tax rate ranges between 2.5 percent and 10.0 percent for certain end customer goods.
However, Indonesia's Chamber of Commerce and Industry (Kadin Indonesia) said it is concerned that high import tariffs will impact negatively on the Indonesian economy as it will push selling prices of goods higher (resulting in inflationary pressures), thus reducing people's purchasing power. Moreover, the Indonesian government has recently been eager to engage in free trade agreements. However, the planned higher import tariffs will give a negative signal to foreign negotiating partners.
Similarly, the Indonesian Employers Association (Apindo) urges the government to select only those goods that have very limited value toward the whole Indonesian economy. If not, then Indonesian consumers will have to face higher prices, meaning household consumption is bound to weaken.
Meanwhile, the Indonesian government is studying whether it can limit entrance points for imported goods. Currently there are five entrance points for imports, namely Belawan (Medan), Tanjung Priok (Jakarta), Tanjung Emas (Semarang), Tanjung Perak (Surabaya), and Soekarno-Hatta (Makassar). Imports can also enter Indonesia through the international airports.
To limit imports, Indonesia's Industry Ministry now proposes to close several harbors for imports of specific commodities. This will then strengthen supervision on the flow of imported goods and will also strengthen Indonesia's domestic manufacturing industry. For example, imports of footwear into Indonesia rose 24.33 percent (y/y) to USD $351.03 million in the first half of 2018. By allowing too many competitive imports, the domestic footwear industry has difficulty to develop.
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