Indonesia raises import taxes on 1,000-plus goods to support rupiah

The rupiah dropped to its weakest level since the 1998 Asian financial crisis this week, closing at 14,930 per US dollar on Sept 5, 2018. PHOTO: REUTERS

JAKARTA (REUTERS) - Indonesia will raise import taxes on more than 1,000 goods ranging from cosmetics to cars, as part of measures aimed at cutting imports and supporting a weak rupiah, the finance minister said.

The import tax will be raised to up to 10 per cent on 1,147 mostly consumer goods, from an existing 2.5 per cent to 7.5 per cent, effective next week, Finance Minister Sri Mulyani Indrawati told a news briefing late on Wednesday (Sept 5).

"We want to be alert, but we also want to be selective. These are unusual times, so we are carrying out measures that we wouldn't do during normal times," Ms Indrawati said.

The rupiah dropped to its weakest level since the 1998 Asian financial crisis this week, closing at 14,930 per US dollar on Wednesday. Stocks tumbled the most in nearly two years and bond prices also fell.

The battered currency has been one of emerging Asia's worst performers as investors dump assets as US rates rise and amid fear of contagion from crises in Argentina and Turkey.

Tariffs will be kept at 2.5 per cent for raw materials used by the manufacturing industry because of the important role in domestic production, Ms Indrawati said.

Consumer goods such as ceramics, audio speakers and swimwear will have a 7.5 per cent import tax applied. Products that can be made domestically ranging from soap and shampoo to kitchen appliances will be taxed at 10 per cent.

Luxury cars will also be taxed at 10 per cent, while Industry Minister Airlangga Hartarto said the import of cars with engine capacity of 3,000 cc and above will be stopped.

"This is a good chance for local producers to penetrate our own domestic market that is usually filled with imported goods," Indrawati said.

Trade Minister Enggartiasto Lukita said the higher taxes did not breach free trade rules set by the World Trade Organisation because importers can offset the tariffs on their tax liabilities.

Government data showed goods covered by the taxes were worth US$5 billion in the first eight months of this year and US$6.6 billion throughout 2017.

The government will also relax rules on coal, palm oil and rattan exports, Mr Lukita said, without providing details.

It is unclear whether importers would pass on the higher tariffs to consumers, though Mr Lukita predicted the impact on inflation would be minimal.

Some manufacturers relying on imported raw materials are already feeling the impact from the rupiah's slump.

Unilever Indonesia director Sancoyo Antarikso said his company had adjusted some prices in August and was reviewing costs to preserve profitability, growth and support brands.

Agus Nurudin, managing director of market researcher Nielsen Indonesia, expects the price of food containing dairy, soy, beef and wheat to rise if the rupiah falls further.

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