Heaptalk, Jakarta — Indonesia’s Ministry of Industry (Kemenperin) revealed that the country’s manufacturing sector views import relaxation policies as a more significant threat than the recent increase in Value-Added Tax (VAT) to 12%.
Ministry of Industry spokesperson Febri Hendri Antoni Arif explained that the manufacturing sector generally considers the VAT hike manageable by 12%, especially since the government has introduced economic incentive packages. These include waiving income taxes (PPh) for industrial laborers earning below Rp10 million.
“Our assessment shows optimism among industrial players. However, we continue to receive reports indicating that industries are more concerned about import relaxation policies, which risk flooding domestic markets with cheap imported products,” Febri stated.
He further acknowledged that the VAT increase would marginally impact production costs, potentially lowering utilization rates by 2-3%. Nevertheless, industries can adapt by reducing production utilization and adjusting product prices.
In contrast, the consequences of import relaxation are far graver. The influx of cheaper imported goods undermines the competitiveness of local industries, posing a significant challenge to sustaining market share.
“If we compare the VAT hike’s impact to import relaxation or weak import restrictions, the latter weighs heavier on industries. Domestic markets risk being overwhelmed by imported products,” he added.
To illustrate, Febri cited an example:
- A domestically manufactured product with a cost of goods sold (COGS) of Rp50,000 could increase to Rp56,000 after a 12% VAT hike. Despite this, industries could still adjust pricing and remain competitive.
- Conversely, imported goods priced at Rp30,000 would create an insurmountable challenge for local manufacturers to compete on pricing, even with operational adjustments.
“For industries, import relaxation policies are far more concerning than a 12% VAT increase, especially since the government has introduced economic measures to offset the tax’s impact,” Febri concluded.
