'Luxury tax on electronic goods must be scrapped'

A'an Suryana, The Jakarta Post, Jakarta

The Ministry of Trade and Industry has proposed to the Ministry of Finance to drop the existing luxury tax on electronic goods, arguing that the tax has discouraged investment in the sector.

I Gusti Putu Suryawirawan, director for electronics and information technology at the Ministry of Trade and Industry, was quoted by Antara as saying on Thursday that some of the electronic products should have no longer even be considered as luxury goods.

He pointed out on items such as 14 inch-televisions, flatirons, fans and radio cassettes.

According to Lee Kang Hyun, chairman of the Indonesian Electronics Association (Gabel), electronic goods, both imported and locally produced, are subject to luxury taxes of between 10 percent to 70 percent.

Among of electronic products imposed with a 20 percent tax are refrigerators (with a capacity of more than 230 liters), heaters, air conditioners, washing machines, flatirons, and 21-inch to 29-inch televisions.

Putu said that the luxury tax had caused the prices of electronic products here to become more expensive, which in turn limits the market demand.

He said that this year's sales of electronic products was estimated at only around Rp 32 trillion, compared to the market potential of around Rp 50 trillion.

He explained that the weak market demand had discouraged investors to make new investments in the domestic electronics industry.

He cited, as an example, that electronics giant Sony Corp. had dropped its investment plans in the local electronics sector due to weakening sales.

Reports had earlier said that many investors opted to build high-tech electronic manufacturing plants in other countries in the region like Malaysia, Thailand and China partly because of the unfavorable tax policy here.

Industry analysts said that combined with lingering labor conflicts and security problem, only low-end electronic product makers stay in Indonesia.

"Because of this problem, the luxury tax on electronic goods must be scrapped," he said, adding that the Ministry of Trade and Industry had made the proposal since last year, but so far there had been no response from the Ministry of Finance.

He said that the latter must move quickly to help revive foreign investments at home.

Meanwhile, Lee said that the luxury tax had encouraged certain people to smuggle in electronic products in order to be able to sell them here at cheaper prices because they didn't have to pay the taxes.

This in turn is hurting the sales of electronics makers here.

"In order to win competition in the tight market, some often take a short cut by smuggling the products," Lee said.