Here is today's Editorial from The Jakarta Globe (online edition)
Drink Tax May Lead To a Long Hangover for Indonesia
The optimism on the part of the country's makers of alcoholic beverages last week has evaporated in a blink. The government had earlier announced that it would scrap luxury taxes on alcohol starting in April, encouraging the industry to think that business might just start picking up.
But those hopes were dashed on Tuesday when the Ministry of Finance announced that it would raise excise taxes on alcohol beverages by up to threefold. Such a sudden steep increase will surely have a crippling impact not just on producers but will also affect a broad spectrum of the hospitality industry.
Most nations levy some form of tax on alcohol to deter young people from consuming it for health and social reasons. We accept that the sale of alcohol should be kept out of reach of youths, and pricing is one effective way to achieve this goal. It must, however, be balanced with the needs of business. By raising excise taxes by such an exorbitant rate, the government risks driving many operators of entertainment venues and restaurants out of business. This will affect the livelihood of thousands of workers across the archipelago.
The Finance Ministry said that the new excise policy was aimed at compensating for the expected lost revenue from the scrapping of luxury taxes on alcoholic beverages. Industry players have noted that when the luxury tax system was in place, beer producers in the country had contributed about Rp 4 trillion ($440 million) annually to state coffers.
The new excise tax is expected to increase the revenues the government collects from alcohol to Rp 4.8 trillion, which is not very much considering the possible negative impact to the industry. Furthermore, the policy will in all probability lead to a thriving black market for alcohol beverages. This would defeat the stated goal of the government to increase revenue from the sale of beer and spirits.
It would be far more effective for the government to levy a reasonable excise tax of 30 percent to 50 percent and allow the industry to grow in a sustainable manner rather than shooting for short-term spike in revenue that would damage long-term prospects for the industry. A proper balance must be strict between three objectives: raising government revenue; promoting the hospitality industry; and limiting the consumption of alcohol among minors.
This can be done by a close working relationship between the government and industry. It is in the interest of the private sector to promote responsible alcohol consumption, but it is in no one's interest to hike taxes by nearly 300 percent. That sends out all the wrong signal and will prompt civil servants and producers to look for ways to circumvent the prohibitive tax regime.