Indonesia Raises Import Tax on a Range of Goods

The Indonesian government has announced that it is raising the import tax rate on a large number of goods, including food, clothing, and other consumer products. The move comes as the country continues to search for a method of jumpstarting its weak economy, which has been experiencing its slowest growth in six years. The government is also hoping that the new tax rates will help support and grow local industries.

Although the government has high hopes, the import tax rate increases have been viewed critically from many corners, and there are worries that this recent move could in fact make Indonesia even less competitive vis-à-vis its regional competitors. Across the region the current trend has been an ongoing reduction in import tariffs – the ASEAN Economic Community, which is nearing its January 2016 implementation deadline, is but one facet of this.

 In fact it has even been suggested that Indonesia’s new tax could end up being challenged in the World Trade Organization’s (WTO) dispute resolution mechanism. There is also the potential that the new tax increase may end up fueling inflation, a problem the country is already struggling with – June saw inflation rise to 7.26 percent.

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However, the Director General of Indonesia’s International Trade Cooperation Department within the Trade Ministry, Bachrul Chairi, has stated that the tax raise is not “a protectionist measure…We raised [the import taxes] based on our national interest and it does not violate the rules.”

Certain imported products have seen significant import tax rate increases, these include:

• Meat: rising from the current level of five percent to 30 percent
• Tea and coffee: rising from the current level of five percent to 20 percent
• Cars: rising from the current level of 10-40 percent to 50 percent
• Liquor: switching from the current fixed rate of IDR125,000 (~US$9.24) to 150 percent of the price
• Clothing: new levels will range from 15-25 percent

Other products that have seen tax rate increases include non-alcoholic beverages, carpets, and air conditioning units.

Indonesia has been struggling to strengthen its economy and weakening currency for some time now. The rupiah is now the worst performing currency in Asia for this year. In December of last year, the rupiah hit its lowest point since the 1997-98 Asian Financial Crisis.

RELATED: Indonesia’s Economy Struggles to find its Footing

Indonesia’s president, known colloquially as Jokowi, has set a target of seven percent GDP growth by 2017. He aims to achieve this through increased infrastructure spending and attracting more foreign investment. Although he has made some positive steps, this year’s first quarter GDP growth of 4.71 percent has raised worries that the government’s plans are not being implemented quickly enough. The newly announced import tax raise has certainly rattled many foreign businesses operating in the country and it remains to be seen what the long-term impacts of the increased tariffs will be.

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