The Ministry of Finance (MOF) plans to issue a Regulation (PMK) to impose new income tax rate son imported goods. Though, the new rates that are aimed at reducing the entry of imported goods, they are feared to have negative implications for the national economy.
The imposition of income tax on imported goods is actually mandated from Law Number 36 Year 2008 (UU 36/2008) regarding Income Tax. Implementation of these regulations are stated in the Minister of Finance Regulation (PMK) Number 34 Year 2017 regarding The Collection of Article 22 Income Tax In Relation to Payments for the Delivery of Goods and Activities in the Importation Sector or Business Activities in Other Sectors.
The four income tax rates for imported goods are 10%, 7.5%, 5%, and 2.5% from import value. The tariff applicable varies according to the type of goods.
The government plans to impose an income tax rate of 7.5% for imported goods that have a domestic alternative (substitute) and that are not strategic goods. There are around 500 types of goods identified by the government that can be imposed by this policy. Those goods include various shopping items from abroad that may contributed to a surge in imports of consumer goods.
Vice Chairman of International Relations of the Indonesian Chamber of Commerce and Industry (Kadin) Shinta W. Kamdani worries that the policy would harm the nation’s economy. Her reason is because the increase of income tax rate for imported goods may also increase the selling price. “At the moment the Indonesian manufacturing industry is starting to grow, this (policy) should not be counterproductive to the government’s desire to encourage exports to increase,” Shinta explained, Tuesday (8/21).
Although classified as consumer goods, some of these imported products can also become auxiliary raw material for an industry. Even though substitute goods are available at a domestic level, the prices tend to be more expensive than imports.
Furthermore, on the other hand, the government is currently active with efforts to open the market through free trade agreements (FTA) and attracting investment. Shinta is concerned that the increase in income tax rates for imported goods will give negative signals to investors and negotiating partners in Indonesia. “If the government still insists on implementing this policy, we ask them to be really careful in determining which commodities will be stopped because the implications can be very ample,” Shinta said.
Increase of inflation Threat
The Vice Chairman of the Employers’ Association of Indonesia (APINDO), Suryadi Sasmita requested that the government ensures the increase of import income tax tariff only applies to goods that contribute little towards the economic growth.
The reasoning is that if the increase in income tax rates for imported goods applies to all goods, then society harmed as a whole. The level of household consumption will be depressed. “Entrepreneurs desire to sell goods and be profitable, but at a price that the public will still be able to purchase on.” explained Suryadi.
Meanwhile, Piter Abdullah Redjalam, CORE Indonesia Research Director, said that the government must carefully select goods that would be subjected to an increased income tax rate. If not careful, not only will purchasing power be depressed, but inflation will also increases.
“The revision for the policy regarding income tax rate for imported goods is clearly aimed to reduce the rate of import growth to reducing the current account deficit (CAD). Indeed there are side effects, namely the increase in prices and inflation,” Piter explained.