Scrap soda luxury tax, says UI

The Jakarta Post, Jakarta

The University of Indonesia (UI) has suggested the government scrap luxury taxes on carbonated drinks, saying the move will increase rather than decrease the government's tax revenue from the industry.

UI's Research Institute for Economy and Society (LPEM-UI) made the suggestion on Tuesday in conjunction with the results of a survey titled "The impact of luxury tax removal from carbonated soft drinks".

"If the government scraps luxury tax on carbonated drinks, state revenue will decrease by Rp 58.4 billion (US$6.8 million)," the paper said.

However, it added that sales of carbonated soft drinks would likely increase due to lower retail prices resulting in an overall increase in tax revenue.

If sales of carbonated drinks climb by 15 percent, tax revenue would be Rp 11 billion higher than the amount collected from the luxury tax, the paper said.

"On top of that, there are multiplier effects from the sales increase," LPEM-UI's economist Chatib Basri told reporters on the sidelines of the seminar discussing the paper. "The investment climate would revive and it would create more jobs."

Under Law No. 18/2000 on Luxury and Value-Added Taxes, carbonated beverages are taxed 10 percent because the products are considered luxury items.

Chatib said the government's criteria on luxury goods was also confusing, pointing out that soft drinks were by no means luxury products.

Also in the seminar, businessman Anton Supit supported the research's conclusion, saying the recent elimination of such taxes on electronic goods had had a positive impact on the industry.

"The industries need tax reform to revive," he said. "But the reform should be carried out thoroughly, including a reform in the investment climate."