Govt to lift luxury tax on soft drinks

Fabiola Desy Unidjaja and Zakki P. Hakim, The Jakarta Post, Jakarta

Soft drinks in Indonesia are relatively inexpensive, compared to prices in countries with higher purchasing power, however, they could become even less expensive as the government plans to lift the luxury tax currently imposed on them.

As part of its must-do list of economic actions in its first 100 days, the government announced on Thursday that it would abolish luxury taxes on non-alcoholic beverages as a measure to boost the performance of the industry, and the business climate as a whole.

State Minister for National Development Planning Sri Mulyani unveiled the plan on Thursday during a press briefing after a Cabinet meeting, in which the ministers discussed actions to be taken by the new government over the next three months.

"But, it will apply only to non-alcoholic drinks," Sri told reporters, without elaborating on specific drink products.

At present, according to the executive director of the Indonesian Food and Beverages Association (GAPMMI) Thomas Dharmawan, there are three groups of beverages that remain subject to the 10 percent luxury tax -- carbonated drinks, juice products and certain types of milk products.

Thomas said that the government would likely lose out on some revenue in the short run by abolishing the luxury tax on beverages, but in the longer term, it would enjoy more benefits from increased corporate income tax due to increased sales.

According to a study by University of Indonesia's Institute for Economy and Social Research (LPEM-UI) last year, scrapping the luxury tax on carbonated drinks would eventually boost the government's tax revenue over time.

The study showed that due to the resulting lower retail prices of the products, an increase in sales of carbonated drinks by 15 percent would translate into a Rp 11 billion windfall over and above the amount what they would reap from the luxury tax.

On top of that, there are multiplier effects from the increased sales, including the encouragement of new investment and thus more employment.

Sri Mulyani also said that the government would also introduce other tax incentives to boost the economy. She said that the government was mulling an increase in the ceiling for non-taxable income, which according to the 2000 tax law, currently stood at Rp 2.88 million (about US$320) per year for individual taxpayers.

"These incentives are aimed at creating a better tax policy," she said.

Meanwhile, Minister of Trade Mari Elka Pangestu said her ministry would make the nation's tariff system more efficient, and added that the current tariff structure could hamper growth in manufacturing sector.

"It would be part of a deregulation and de-bureaucratization package, which will include reviewing several trade regulations," she said.