Finance minister Sri Mulyani Indrawati said the 2020 State Budget deficit could widens to 6.27 percent of gross domestic product (GDP) followed the development of COVID-19 pandemic in Indonesia - Photo by Ministry of Finance Office

JAKARTA (TheInsiderStories) – Indonesian government will review import tax after get protest from the importers. The import tax on more than a thousand products is considered giving negative impact, especially for importers who use the products to be exported, the associations said.

Last year, the government revealed a list of 1,147 items slapped with higher import tariffs as a short-term response to counter the might of the dollar. This import revenue tax also aims to control trade deficit through import squab.

Based on the Finance Ministry Regulation Number 110 Year 2018 the government raised import tariffs on 719 items to 7.5 per cent from 2.5 per cent, 218 items to 10 per cent from 2.5 per cent and 210 items to 10 per cent from 7.5 per cent.

These 1,147 items accounted for imports worth US$6.6 billion in 2017 and $5.0 billion in January to August this year. Imported consumer goods like shampoo, soap to luxurious car taxed 10 per cent tariffs.

The government, though, keep the import tariffs at 2.5 per cent for 57 imported raw materials necessary for manufacturing industry. Finance Minister Sri Mulyani Indrawati said the list of imported goods slapped with higher tariffs was decided after a thorough analysis and its impact on economy growth.

In the meeting with the associations the minister stated, at first, the regulation aims to manage import. But if it damages export supply chain, the ministry will re-assess the tax policy.

While director general of Customs and Excise Heru Pambudi, added that the relaxation will be given especially for those who import for export by being an exception. He said, importers will pay revenue tax with the previous tariff.

Previously, country director of the World Bank Indonesia, Rodrigo Chaves rated that the government’ move to postpone some infrastructure projects that bring investment and cut imports tax deductions would not have a significant impact on improving the current account deficit (CAD) in the near future.

He assessed that the steps taken by the government to deal with the CAD would instead have an impact on increasing export realization and will erode the long-term investments.

“The steps to impose tax cuts on imports and delaying public investment will not have a large impact on CAD in the near future,” he said.

World Bank Chief Economist Frederico Gil Sander also considered that one of the steps for the country survived from the global crisis was an increase in investment. He said, that with the potential investment announced by the government in the past year it could be a reinforcement of Indonesia’s economic fundamentals.

“Indonesia must continue to increase its ambitions in trade so that exports can be more competitive,” Sander said in the same location.

He revealed although coordinated policy measures taken have significantly increased resilience to the financial market turmoil, the low levels of exports and foreign direct investment imply that pressure from capital outflows is likely to continue.

“The current account deficit is expected to widen to 2.4 percent of GDP in 2018 and stabilize at 2.3 percent of GDP in 2019, because lower outflow of primary income is offset by a weak trade exchange rate plus investment demand for capital goods imports and decreased exports growth at major trading partners,” Sander said.

During Jan. 1 to Feb. 11, Indonesia’ average import foreign exchange revenues recorded at $28.1 million. It decreased by 7.11 percent compared to the same period last year. Luxury goods has the deepest decline by 30.33 percent, followed by processed material that decreased by 1.81 percent. On opposite, consumer goods still increased by 3.3 percent.

Since last year, the government is scrambling for responses as the US dollar continue to display its might on the combination of the Federal Reserve’s monetary tightening, the US’s widening fiscal deficit and trade war with key economies like China and the European Union.

For Indonesia, the downside pressure was further affected by investors’ risk-off sentiment on emerging market assets due to ongoing financial crisis in Turkey and Argentina and economic contraction in South Africa.

by Linda Silaen, Email: