If you buy a smartphone from time to time in Indonesia, then you might not welcome this news well: the Ministry of Trade and Industry is planning to impose a 20 percent luxury good sales tax on imported smartphones. The proposed tax will affect either phones priced above IDR 5 million (US$ 442 ) price, or foreign phones at all price points (officials haven’t decided yet). The ministry reasons that they need to protect the local handset manufacturers from the onslaught of overseas brands flooding the country. They plan to implement the policy this year.
The Supreme Audit Agency (BPK) states that Indonesia imported $2.79 billion worth of handphones in 2013. That’s the biggest imported commodity in Indonesia next to oil and gas. In the other hand, the same ministry has been trying to spur the growth of the local handset manufacturing industry by attempting to court Taiwan giant Foxconn into Indonesia. Currently Indonesia only has smartphone factories for five local brands: Axioo, Polytron, Evercoss, Mito, and Advan.
Evercoss and Mito are the two top local phone brands in Indonesia, with the former aiming to sell 1.5 million phones per month this year. Advan claims that they sold about one million phones and tablets each month last year. Evercoss and Mito took the fifth and seventh spots respectively for top phone shipments in Q3 2013 in Indonesia. They are beaten by Samsung, Smartfren, BlackBerry, and Lenovo.
Repercussions and concerns
But according to state-owned enterprises minister Dahlan Iskan, as well as the Indonesian Cellular Phone Association (APSI), the government could have taken further measures to spur local growth. Currently Indonesia charges five to 15 percent import duties for handphone components, but doesn’t charge a dime when importing a whole handset. That alone has become a hindrance for local manufacturers looking to grow their own smartphone lines. Of course the government could have simply given better incentives for foreign companies to build factories in Indonesia.
APSI also argues that the policy will lead to more rampant black market smartphones. Final price points for imported phones in Indonesia would be quite high compared overseas prices, making black market purchases all the more tempting. APSI estimates that there are currently about 60 million illegal phones used in the country.
The ministry says that they understand people’s concerns, and will consider and anticipate all the negative repercussions the policy might bring about. Specifically, the country is considering taking measures to restrict the number of black market phones entering Indonesia, and to limit the use of such phones that have already come in. Regarding the latter, the government is considering to only let people use phones with a registered International Mobile Equipment Identity (IMEI) – a unique identification for each mobile phone. Phones that don’t have registered IMEIs won’t be able to be used in Indonesia. A similar plan involving IMEI was raised last year but a lot of industry representatived deemed it unfeasible.
There is also another issue regarding whether smartphones themselves should be considered luxury goods. Yustinus Prastowo from the Center for Indonesia Taxation Analysis believes that handphones with over IDR 10 million ($884) price tag can be considered as a luxury good, but not IDR 5 million ($442). When compared to other electronical devices, TVs and refrigerators priced below IDR 10 million ($884) are not considered luxury goods, while air conditioners priced below IDR 8 million ($707) are not luxury goods either.
What do you think? Do you agree that Indonesia should impose taxes on imported phones? Let us know in the comments.