Indonesia - September 2018
The Indonesian government has been taking multiple steps to curb imports and support the weakening currency, which dropped to a 20-year low of nearly 14,800 (IDR/ USD) in early September 2018. While the central bank is intervening in the foreign exchange and bond markets and has raised benchmark interest rates four times since May 2018 to shore up the Rupiah, the government has been taking steps to curb imports. Indonesia has been among the most severely affected countries, apart from Turkey, Argentina and South Africa, by the emerging-market selloff, as investors move funds to the US to benefit from the US rates hike.
On 5 September, Indonesia’s Finance Minister Sri Mulyani Indrawati approved tax increase on imported goods. The Income Tax (Pph 22) increase for imported goods will impact 1,147 items, with rates rising to a maximum of 10% from the prevailing range of 2.5% to 7.5%.
For 210 items, rates rose from 7.5 % to 10%. Included in this category are luxury items such as CBU (Completely Built Up) cars, and large motorbikes. The import of luxury cars with engine capacity of 3.000 cc and above will be put to a halt. For a further 218 items, rates have been increased from 2.5% to 10%. This category includes consumer goods that can be produced domestically, such as electronic goods (water dispensers, air conditioners, lamps), daily necessities such as soap, shampoo, cosmetics, and cooking utensils / kitchen items. Taxes on 719 items rose from 2.5% to 7.5%. This includes building materials (ceramics), tires, audio-visual electronic equipment (cables, speaker boxes ), textile products ( overcoat , polo shirts , swim wear etc.
The move by the Indonesian government is to complement other measures which have been put in force to narrow the current-account deficit, including using palm oil biodiesel to reduce imports of crude, delaying infrastructure investment and rescheduling shipments.
(Sources: Ministry of finance, Indonesia; Bloomberg; The Jakarta Post; Straits Times; Nikkei Asian Review)