Jakarta, Indonesia - Indonesia plans to lower the luxury tax on imported electronics goods to stem the flow of illegal gray-market imports, which currently account for more than half of electronics sales here, according to one local estimate.
The Indonesian government is also working to correct other policies that critics say favor the import of knockoffs over name-brand goods.
Indonesia plans to get tough on smugglers by tightening its antipiracy laws and imposing stiff fines and even prison terms on violators. Plans are being drawn up that would subject shopping mall owners to new copyright protection laws, said Justice Minister Yusril Ihza Mahendra. Jail terms of between one month and seven years, plus fines of up to $588,235, would be levied on those who continually flout the laws.
Sales of electronic products in Indonesia are expected to reach about $2.22 billion this year, increasing to $3.19 billion in 2005. While Indonesia's electronics sales are expected to grow by around 10 percent this year, the gray market is expected to expand by at least 20 percent.
Critics have repeatedly claimed that Indonesia has turned a blind eye to the illegitimate market that flourishes in Jakarta's Chinatown area, called Glodok. Some have asserted that Indonesia's lax enforcement of its laws has been a barrier to foreign investment. "You can find parallel imported products [on the gray market] that are discounted by more than 10 percent from the original price of branded consumer items," said Adnan Nasution, a store owner who sells Nokia cell phones in the city center. "This has raised the ire of those who sell goods that have been legally taxed, making their products less attractive to consumers."
The government must improve its trade policies and revise its tax regulations to help create a competitive domestic market instead of one reliant on cheap imports, said Adhi Sukmono, secretary general of the Indonesian Electronics Manufacturers (Gabel). The past government practice of liberalizing the import of knockoff products while imposing a 5 percent to 10 percent import duty on branded electronic components had helped the gray market flourish, he added.
The Indonesian Electronics Manufacturers Association maintains that at least 50 percent of imported electronics sold locally are imported illegally.
Lee Kang Hyun, chairman of that group and general manager for marketing at PT Samsung Electronic Indonesia, said in an exclusive interview with EE Times that the country's Trade and Industry Department has been tasked with the elimination of the luxury tax on electronic products.
"I have proposed a reduction of the value-added tax from 10 percent to 3 to 5 percent," he said. "The reason is that, on top of the value-added tax of 10 percent, [there is a levy of] 2.5 percent as an import product tax, making for a combined tax of 12.5 percent. It's a big percentage, considering that the smugglers do not pay any taxes."
There has been a dearth of investment in Indonesia by global electronics companies, and some foreign companies, such as Sony Corp., that have operated here have relocated operations to China or Vietnam. But PT Samsung does not intend to relocate from Indonesia despite the difficulties, Lee said.
Samsung manufactures CD-ROM systems, DVD players, color televisions, computer monitors and VCRs at its factory in Cikarang, in West Java. "We are considered one of the largest electronics exporters in Indonesia, and as of December 2002 we had achieved sales of an export value estimated at $750 million," Lee said. The Samsung executive also praised the Indonesian labor force's sophistication and adaptability to change.New era
The mind-set of the past is being challenged in Indonesia, Lee said. "Under the new government people can speak more freely, and the government is prepared to listen as well as create a healthy, conducive business environment."
But there is still much work to be done. "We all hope that Indonesia will become more politically stable and economically attractive," Lee said.
More efforts should be made to replicate the success of Batam, an industrial development area, throughout the Indonesian archipelago, Lee said. "There should be an effort to look at other cities such as Surabaya, Bandung and Medan that develop certain core areas of expertise," he said. That would shift the focus to the development of Indonesia as a whole, and would benefit the country by raising educational levels, Lee said.