Barrier to exports
Barrier to exports
Anyone intending to exploit the huge potentials of the export
business in Indonesia may want to ask themselves if they have the
strength and stamina to overcome the frustration they will
encounter from mounting bureaucracy.
They should take their cue from the Ministry of Industry and
Trade's Director General of International Trade Anang Fuad Rivai.
During a hearing with the House of Representatives on Tuesday,
Anang disclosed that an exporter in Indonesia currently has to
pay at least 4,396 different levies, imposed at various levels,
from the mayoralty and regency administrations to central
government agencies in Jakarta. These are official levies for
which official receipts are issued. There are also illegal
levies, the number and total amount of which are close to
impossible to ascertain.
Anang's disclosure is still astonishing, if not disturbing,
although everyone in the business knows very well that levies,
official or otherwise, are rampant in Indonesia. Anang did not
disclose how these nearly 4,400 levies affect the competitiveness
of our exporters. The Indonesian Chamber of Commerce and Industry
said earlier this year that the amount of levies -- both legal
and illegal -- could add up to 27 percent of production costs.
Those already in the export business, or any business for that
matter, have managed to live with these thousands of levies by
incorporating them as part of the cost of doing business, and
passing the extra expense onto consumers. But this reality is
certainly a major deterrent to newcomers to the export business.
Until early this year at least, exporters as well as other
entrepreneurs largely kept silent about the problems of business
levies. The deregulatory packages, including debureaucratization
measures, introduced by the government since 1983, have managed
to bolster the economy and boost non-oil exports, giving
businesses hardly any grounds for complaint. The local and
central government agencies continued to charge the levies, which
proved to be major sources of revenue, and businesses continued
to pay them. It was a win-win situation where everyone gained and
no one lost.
Conditions, however, have changed. In the last two years,
Indonesian exports have slowed down and the growth of imports are
outpacing exports, slashing the huge trade surplus that once
acted as a cushion in our balance of payments. This is occurring
while Indonesia has barely caught up with the newly
industrialized countries like Malaysia and Thailand, yet it is
fast losing its competitive edge to newcomers in the world market
like China, Vietnam and India. The closing down of many textile
and garment plants this year is one indication of Indonesia's
declining competitiveness in industries traditionally reserved
for developing countries that rely on cheap labor.
Ironically, entrepreneurs only began making noises about
rampant business levies early this year after the government
instructed them to raise their employees' wages. They argue that
given the fierce competition in the export market, raising the
salaries of their workers would raise costs which in turn would
render them uncompetitive. However, if the government does
something about the levies, then they could grant the pay hikes
demanded by the government. No wonder it was Minister of Manpower
Abdul Latief who took the initiative in February and campaigned
for the scrapping of business levies. Coordinating Minister for
Production and Distribution Hartarto later picked up the cause.
Sadly, after many promises to look into the matter, the
slashing of levies was not included in the deregulation package
announced last month. This probably indicates just how deeply
rooted the problem of levies has become: that various government
agencies have become dependent on them for revenue and there is
no clear prospect of replacing them if they are scrapped.
Given the worrying trend of our export and import figures,
something must be done soon. The biggest barrier to export growth
now is no longer the lack of skilled labor or lack of
entrepreneurship. It is now apparent that the government is the
problem. After so many trade liberalization measures, including
slashing tariffs, Indonesia's options to stay competitive in the
world markets have become fewer. The next package of economic
deregulations should target business levies which have largely
remained untouched and tolerated to this day.