Industry says luxury tax stymies electronics development
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.