Industry says luxury tax stymies electronics development

Zakki P. Hakim, The Jakarta Post/Jakarta

If you think a 29-inch tube screen television or a camera cell phone with add-ons -- both selling for about Rp 3 million, (US$330) -- are luxuries then you're in agreement with the government.

The state currently categorizes all televisions measuring more than 22 inches diagonally and new generation cell phones as goods subject to luxury tax.

However, industry players say this tax of between 10 percent and 20 percent has hindered the development of premium and high- end electronics equipment in the country, leaving the local industry stuck in a rut producing low-end goods, while neighboring countries have moved on to more advanced products.

Indonesian Electronic and Electrical Appliance Industries Association (Gabel) deputy chairman Lee Kang-hyun said other countries had removed the luxury taxes on their electronic goods and there had been a corresponding increase in investment in the industry.

"South Korea, for example, has removed its luxury tax on Plasma TVs, as an effort to encourage the industry to further develop (the product)," he told The Jakarta Post over the weekend.

Singapore and Australia had also scrapped luxury taxes, Lee, who is also the marketing general manager of PT Samsung Electronic Indonesia, said.

As a result, in Singapore, a 42-inch flat-screen plasma TV is priced at $US 3,000, or 25 percent cheaper than the Indonesian price tag of $US 4,000.

Lee said the association had recommended the removal of the luxury tax in it's industry road-map, part of a presentation to the next government by the Indonesian Chamber of Commerce (Kadin).

The government first imposed luxury taxes of between 10 and 40 percent on most electronic products, including TVs, refrigerators, air conditioners and washing machines, in 1985. It gradually cut the list of products subject to the tax but several products that are commonly used by the public, such as large screen TVs, are still taxed.

The high levy on both locally manufactured and imported consumer electronics goods not only increased prices for the goods but also created a black market for illegally smuggled products from overseas, Lee said.

The association has claimed up to 50 percent of electronic products traded in Indonesia were illegally brought into the country and has been lobbying the government to take firm action to curb the trade.

Lee said these problems in the industry had discouraged new investors from entering the country and caused some existing investors to pull out.

Japanese electronic giant Sony Corp relocated its plant two years ago to Malaysia due to declining local sales and labor and security problems.

Reports say the unfavorable tax is one reason for many investors opting to build high-tech electronics manufacturing plants in Malaysia, Thailand and China, rather than Indonesia.

LG Electronic Indonesia marketing manager Sung Kyun said the government should reconsider whether 22-inch TVs and Rp 3 million mobile phones were still luxury items as they were now common.

"I believe such goods are now generally affordable to most if not all middle-class Indonesians," Sung told the Post.

Sung said that the government should provide special tax incentives for existing companies to entice in new investment for support industries as this would eventually accelerate the transfer of technology.

Last year, Indonesian exports in electronics (including consumer electronic products) stood at around $7 billion, the lowest among ASEAN countries. Thailand recorded some $23 billion of exports in the same year.

The world was moving toward to the stylish and more expensive flat-screen TVs based on liquid crystal displays and plasma technology, Sung said.

But while countries in the region were competing to manufacture the next generation of televisions, Indonesia was still debating whether an old 29-inch TV was a luxury, he said.