'Export tax plan on commodities ineffective'

Adianto P. Simamora The Jakarta Post Jakarta

The government's plan to impose export tax on certain commodities such as raw leather and cocoa products will not be effective in curbing the export of the commodities, industry associations said.

The tax is supposed to discourage export of the commodities to help provide domestic manufacturers with sufficient supply of raw materials at affordable prices.

"It is too late because the price of raw leather is already relatively stable here," Diyono H. Sasmito, chairman of the Indonesian Tanners Association, told The Jakarta Post on Sunday.

He added that the policy would not bring much benefit to the tanning factories as hundreds of them had closed down due to the slow response of the government in resolving the recent raw material shortage.

He criticized the finance minister for being to slow in responding to previous calls for imposing a 20 percent to 30 percent export tax on raw leather to help limit the export of the commodity.

The government is currently planning to issue a regulation that would effectively impose an export tax on certain commodities. The regulation has yet to be approved by President Megawati Soekarnoputri.

The government removed export tax on raw leather in 2000 to meet the economic reform programs set by the International Monetary Fund (IMF).

In 1998, the export tax stood at between 200 percent and 300 percent.

The removal of the export tax had resulted in a shortage of raw materials at home.

Currently, there are only 47 medium and big tanneries across the country with a total production of 72.5 million feet per year, as against 112 tanneries with a total annual output of 210 million feet in 1998.

The number of workers in the industry have also declined from 12,560 in 1998 to only 5,620 in 2001.

Meanwhile, the Association of Indonesian Cocoa Exporters (Askindo) warned that the government's move to impose export tax on cocoa beans would further burden cocoa farmers.

La Odi Mandong, secretary-general of the association said that exporters would in turn pass on the burden to farmers.

"Of course, farmers will always be in a difficult position," La Odi said as quoted by the Kontan weekly economic tabloid.

Indonesia, the world's second largest cocoa producer after the Ivory Cost, currently imposes no export tax on cocoa beans.

La Odi added that the move would also encourage foreign buyers to buy cocoa beans directly from local farmers.

The country's cocoa output is expected to reach some 430,000 tons this year. The country exports up to 80 percent of the cocoa output to the United States, Singapore, Malaysia and Brazil.

The Ministry of Industry and Trade has proposed to the Ministry of Finance the imposition of an export tax of between 5 percent and 20 percent on cocoa beans.

The government currently imposes 10 percent value-added tax and 2.5 percent income tax on the sale of cocoa beans from traders to the local grinders. This has resulted in a shortage of cocoa bean at home as both traders and farmers prefer to export rather than sell to local grinders.

Cocoa beans are processed by grinders into butter and powder which are then used by the food industry to make chocolate products.