The government announced that it plans to impose a higher tax on 1,147 products in total, ranging from cars to shampoo.
Cosmetics and personal care items were among the items that faced the biggest hikes as the government rationalised that consumer goods such as soap, shampoo and cosmetics “can mostly be produced domestically.”
Free-falling rupiah
The higher import tax rates are part of measures to aid Indonesia’s battered rupiah, which fell almost 10% to its lowest in over twenty years, said Finance Minister Sri Mulyani Indrawati.
“We want to be alert, but we also want to be selective. These are unusual times, so we are carrying out measures that we wouldn’t do during normal times,” said Indrawati
Indrawati added that tariffs will be kept at 2.5 percent for raw materials as they are crucial to the domestic manufacturing industry.
Trade Minister Enggartiasto Lukita said the higher taxes were not in violation of free trade rules set by the World Trade Organisation as importers can offset the tariffs on their tax liabilities.
Lukita shared that he expected impact on inflation to be minimal.
Government data showed goods covered by the taxes were worth $5bn in the first eight months of 2018 and $6.6bn last year.
Despite the gloomy economic conditions, Indrawati added that the taxes may be able to benefit local business. “This is a good chance for local producers to penetrate our own domestic market that is usually filled with imported goods.”
The review process was carried out jointly by the Coordinating Ministry of Economic Affairs, Ministry of Finance, Ministry of Industry, Ministry of Trade, and Presidential Staff Office, the press release stated.
It is not the first time the government has implemented such a policy to control imports, it said in a press release, adding that similar policies were put in place in 2013 and 2015.
In 2013, the government raised tax rates on 502 items of consumption commodities from 2.5% to 7.5%. Two years later, taxes on 240 items were raised from 7.5% to 10% on certain consumer goods when Indonesia scraped luxury taxes in order to boost its faltering economy.
