Indonesia, IKEA and Taxes

Looking through the Indonesian IKEA catalogue, as many products available on the local market are inferior (or just far too expensive for quality, as is the case with Informa, Bali) and that is when I noticed that the prices for a small item where 25% higher than items procured through IKEA in Singapore.

Please note that there are a lot of benefits shopping through IKEA, not only do they have a wider range of quality multi channel products but there is quality at a reasonable price. Try shopping in Indonesia, first and foremost, you have to know where to go, then have really high prices and then you gamble on good or bad quality.

The hIgher prices for locally manufactured goods is a direct result of Government applying a 40% luxury sales tax to furniture products over $377 (and no not adjusted for CPI). Sounds weird that this is levied on local manufacturers, this would be no incentive for the millions of Indonesians (new middle class) to save and buy expensive locally manufactured quality furniture, no real incentive to manufacture for local consumption.

It gets weirder, whilst I agree with the VAT Indonesia then has ‘Pertambahan Pajak Nilai’ or PPN.

PPN is a ten percent, point-of-sale tax that extends to services supplied by foreign taxpayers outside Indonesia, if these services benefit Indonesia.

Get that?

Provisions allow for certain items to be taxed, as high as 20 percent, with a cap of 35 percent. So this is basically a tax on foreigners… if you supply services to the Country then your ‘income’ from those services are taxed…..ummm could you imagine the backload of applications required to be processed to ascertain the amount of tax and what items apply?

Then we have the ‘PPnBM’ and acronym on an acronym which is the Sales Tax (GST) on luxury goods. It is levied in addition to PPN. It is imposed on luxury goods which are both manufactured in and imported into Indonesia. Rates range from 10 to 50 percent, with a few items taxed as high as 75 percent.

Wow, manufactured locally?

Indonesia has a series of progressive sliding rate taxes for all categories. Furthermore, as a developing nation, much economic activity is done at the ‘cottage’ level where sales and services taxation are tax exempt.

Indonesia’s taxations system recognises the economic reality of the majority poorer citizens and the poor are exempt from almost any taxation. The underlying ethic of “gotong-royong”- “neighbourly / moral help” is applied where the more fortunate wealthier are enforced to meet their moral obligation of a heavier burden of tax, regardless of arbitrary arguments to its fairness.

This policy in my view is stupid. I can understand export tariffs, but to hinder local manufacturers is plain nuts. Especially now that IKEA is the competition and whilst prices are subject to taxes that make the small items far more expensive than Singapore, it is their technology with flat box packaging, which will allow cheaper delivery and spur the IKEA sales. Providing of course the instructions are followed, this in itself may be a tad hard for some people but, hey…. you can always make children’s play things out of the packaging (Google flat pack packaging box ideas… even I was amazed).

In any major economic cycle, exports drop alarmingly, a definite prescription for these local artisans of the trade to go bust and leave this industry. Protectionism gone a tad too far in my opinion and I do not believe that the Government will wake up to this fact.

On taxes, we are all too aware of the 275% excise tax on alcohol and cigarettes and recently the Government in their wisdom decided to ban alcohol sales at mini markets, throughout the Country. I am hoping that the (#deleted) Jokowi will realize the stupidity of this situation and reverse this decision, as he has done on several other controversial laws.

Alcohol restrictions and / or prohibition (as suggested by the Islamic Parties) will not stop alcohol consumption. In fact these decisions may result in more deaths from methanol poisoning. Mind you the mere fact that Indonesia has methanol related deaths increasing every year, is due to this inane alcohol tax in the first place. I doubt they will wake up, it is something that they really do not want to do.

Now my description of Jokowi was deleted, as I do not want to go to jail…

“Under the 2008 Law on Information and Electronic Transactions, Indonesian citizens can serve jail time for insulting people online. And while the legislation has the potential to stave off cyber bullies, authorities have been using it lately to target anyone who poses a challenge to the status quo.”

Yes a Florence Sihombing, a 26-year-old law student, who recently spent the night in jail for calling the residents of Central Java, “poor, stupid and uncultured.”

Or an Indonesian blogger who, several months ago, was sentenced to one year of probation for tweeting about a banking scandal.

Or Alexander Aan, an atheist who spent two years in prison for questioning God’s existence on Facebook.

Take note, even if it is the truth it does not matter.

Oh, and another law is that masturbation is strictly forbidden. Yes don’t get frisky as anyone who breaks the law and gets caught risks being beheaded.

I am not sure how they police this one……

Salamat datang di Indonesia


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