Import Tax Versus Domestic Interests
PMK 110/2018 --- The Import Tax Tariff Counterproductive Regulation: Import Tax Versus Domestic Interests.
An examination study by Bambang B. Suwarso
The Ministry of Finance Regulation Number 110/PMK.010/2018 regarding Amendment to The Ministry of Finance Regulation Number 34/PMK.010/2017 regarding Collection of Article 22 Income Tax In Connection With Payment For Delivery of Goods and Activities In The Field of Import or Business Activity In Other Fields.
· Date of issue: September 5, 2018
· Factors that were taken into consideration on the issuing of PMK 110/2018:
While observing the economic condition, it was deemed necessary to review and to redefine the tariff regulation of income tax article 22 ---- import tax on specific items (goods).
NOTE: the economic condition cited in August 2018.
Based on Reuters data, Rupiah had depreciated into 14.730 or down 0.3% ---- marking its lowest point since September 2015. It slid further down the slope into 14.839 on Friday, August 31, 2018.
Not only Rupiah, other currencies of developing countries such as the Turkish Lira and the Argentine Peso had also been affected by the strengthening of the US Dollar. It is quite an alarming situation for us – developing countries—on paying back our USD loan.
Exports in Vietnam decreased to 13910 USD Million in February from 22076 USD Million in January of 2019. Exports in Vietnam averaged 6521.51 USD Million from 1990 until 2019, reaching an all-time high of 23480 USD Million in August of 2018 and a record low of 537 USD Million in February of 1997.
Exports from Indonesia tumbled 11.33 percent from a year earlier to USD 12.53 billion in February 2019, worse than market consensus of a 4.5 percent drop and after a downwardly revised 4.3 percent decrease in the prior month. It was the fourth straight month of decrease in exports and the steepest annual decline since June 2017, as sales of non-oil and gas products dropped by 10.19 percent to USD 11.44 billion. Meanwhile exports of oil and gas slumped by 21.75 percent to USD 1.09 billion.
Amidst the weakening trade and the increasing loan valued in USD, Rupiah becomes volatile against other world currencies ---developing countries’ included. Indonesia, is one of the very few countries in the region, who has been plagued by current balance deficit, which was up to USD 2.03 billion in July --- this is the highest point since the last five years.
Adding to the depreciated rupiah was the weakening bond market, both may further lead to capital outflow. Reuters reported that the Central Bank (BI) significantly intervened in both the bond and the money market, so as to prevent the capital outflow and to relieve the market pressure.
What happened next?
The rise on import tax tariff (PPh pasal 22) that was applied on many specific type of goods, had become counterproductive against the local industries, whom were supposed to gain benefits from the cause. (Raising the import tax tariff has the objectivity of reducing the value of imports and/or decreasing the number of incoming imported goods, which eventually bring great benefits to local industries).
Taking an example of a special-purpose tire (supersized HS. 4011.90.30) --- used in giant truck in mining and exploration --- this type of tire or product is neither available nor manufactured locally in Indonesia, hence this product needs to be imported.
Another example is the Michelin XDR of the Caterpillar 797F -- a mechanical powertrain haul truck, operates specifically for high-production ore mining in Grasberg, Papua --- priced at over IDR 500 million.
Caterpillar 797F
The above examples suggested unprofitable measures to a mining company or any company inflicted, such as Freeport Indonesia, PT. 51% of Freeport Indonesia, PT (PTFI)’s stocks was divested at over IDR 50 Trillion value, through PT. Indonesia Asahan Aluminium or Inalum (persero).
It may not be a wise move for the Government to impose such a counterproductive regulation against the domestic interests, more over to its own investment.
Proposing a recommendation:
The “extraordinary” rise of import tax tariff (Pph 22), could have been imposed SELECTIVELY; the tariff can be applied ONLY to goods that are not available (irreplaceable) / not being manufactured in Indonesia.
Bambang B Suwarso
