Indonesia scraps luxury tax in bid to boost sluggish growth

By on 12/06/2015
Indonesia's finance minister Bambang Brodjonegoro announced the scrapped luxury tax on Thursday. Photo credit: Credit Suisse

The government of Indonesia has scrapped luxury taxes on most affected goods in an attempt to boost consumption and revive economic growth in the country.

Finance minister Bambang Brodjonegoro announced on Thursday that the move was made “in order to maintain people’s purchasing power amid the economic slowdown, to spur industrial growth, and also to reduce people’s tendency to buy goods abroad.”

He also said he hoped the exemption would counter citizens’ reluctance to pay tax.

Buyers of electrical appliances, sports equipments, musical instruments, and branded goods will no longer be required to pay luxury tax, but will still have to pay value-added tax.

Previously, the government imposed a luxury tax of up to 75%. It still applies luxury tax to expensive cars, yachts, aircrafts, guns, alcoholic beverages and larger properties, Brodjonegoro said.

Those importing luxury goods will be required to pay 10% of the price as income tax, up from 7.5% previously.

Growth in Southeast Asia’s largest economy has slipped to its most sluggish pace since 2009, and in the first quarter consumption remained weak at 5%, the slowest for nearly four years, as disposable incomes were squeezed.

There is also a lot of evidence that consumption, which accounts for about 55% of gross domestic product (GDP), remains weak and retailers are expecting a slow Ramadan this year.

Thursday’s announcement comes just ahead of the holy month of Ramadan, traditionally a period of strong spending in Indonesia, which has the world’s largest Muslim population.

About Winnie Agbonlahor

Winnie is news editor of Global Government Forum. She previously reported for Civil Service World – the trade magazine for senior UK government officials. Originally from Germany, Winnie first came to the UK in 2006 to study a BA in Journalism & Russian at the University of Sheffield. She is bilingual in English and German, and, after spending an academic year abroad in Russia and reporting for the Moscow Times, Winnie also speaks Russian fluently.

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