Soft drink producers demand tax abolition

A'an Suryana, The Jakarta Post, Jakarta

Soft drink producers demanded the government to revoke the 10 percent luxury tax imposed on their products, arguing that the tax had prevented the industry from growing and worse, may eventually ruin the domestic soft drink industry.

The luxury tax has been imposed since 1988.

Gendol Taruna, an executive at the Association of Soft Drink Industries (ASRIM), said in a press conference on Friday that the association could not accept the government's arguments that soft drink products were still categorized as luxury products here, so that the products must be subject to luxury tax.

"Soft drink products are no longer luxury goods, as they are now more affordable and are already widely consumed by mid- to low-income groups," said Gendol, head of the carbonated soft drink unit of the association.

He said a survey conducted by DEKA Marketing Research in 2001 revealed that 72 percent of respondents who consume soft drinks at least once a week, had an average household income of less than Rp 1,000,000 (US$112.36) per month.

According to the survey, which covered soft drink consumers in eight major cities in the country, soft drinks are consumed as frequently as snacks and ice cream, both of which are exempt from the luxury tax.

Among the soft drink category were carbonated soft drinks, instant teas, lemonade and fruit juices.

The association also lashed out at the government's discrimination against the soft drink industry, as bottled drinking water products had been exempt from the tax since 2000.

Having been freed from the luxury tax, bottled drinking water companies have enjoyed a double-digit growth, said Gendol.

In an interview with The Jakarta Post last week, Willy Sidharta, the chairman of the Bottled Drinking Water Association, admitted that the industry expected to see a 37 percent growth this year, and next year it would grow by 20 percent.

Gendol said that the luxury tax was a serious burden to the soft drink industry, because it made their products more expensive.

As soft drink products are price sensitive, the imposition of the tax made the products less competitive, which then pressured on demand and cut sales.

Farchad Poeradisastra, director of PT Ciracasindo Perdana, the producer of SunFresh juice, conceded that his firm's revenues dropped by 60 percent to Rp 4 billion this year, from Rp 10 billion in 2000.

"Therefore, the abolition of the tax on luxury goods would make a difference, and would allow the industry to grow," Gendol asserted.

He argued that industry growth would later increase investment levels and create more job opportunities.

Director General of Taxation Hadi Purnomo said last week that his office was considering to review the policy on value-added tax and luxury tax in a bid to help boost investment here and prevent existing ones from going bankrupt or from relocating to other countries.

As of yet, no details were available about the new plan.