Indonesia Lifts Import Duty on Materials for Key Industries

The Jakarta Globe, Dion Bisara & Irvan Tisnabudi

Tourism is among the seven key service industries set to benefit from the lifting of import duties. (Photo: Adek Berry, AFP)

In a bid to boost investment and increase global competitiveness, the government on Wednesday scrapped the 5 percent import duty normally imposed on machinery and raw materials for seven vital service industries.

The Ministry of Finance said the regulation would take effect on Dec. 16 and would remain valid for two years before being re-evaluated.

The regulation covers transportation, telecommunications, public health, tourism and culture, as well as supporting services for mining, construction and ports and harbors.

Anggito Abimanyu, the Finance Ministry’s head of fiscal policy, said a similar tax break had been given to the manufacturing industry as part of the government’s Rp 73.3 trillion ($7.9 billion) fiscal stimulus package this year.

It was intended to help domestic companies compete in the global market and to attract investment.

“We decided to scrap the import duties for manufacturing industries to encourage domestic industries to open new plants or businesses,” Anggito said.

Jeffrey Mulyono, the head of the coal and geothermal commission at the Indonesian Chamber of Commerce and Industry (Kadin), said he welcomed the move.

“The existence of these [seven service industries] should be supported and [they should] have their taxes lowered to the lowest level possible, which will be beneficial for the local producers as well,” Jeffrey said.

“The Finance Ministry has finally fulfilled the wishes of local businesses by doing this,” Jeffrey added.

However, Erwin Aksa, the chairman of the Indonesian Young Entrepreneurs Association (Hipmi), said the removal of the import duty would not greatly benefit domestic industries until the government was able to provide sufficient basic infrastructure, especially power.

“As good as it is, the incentive will not immediately increase investment because what we really need now is electricity to be available and reliable,” Erwin said, referring to the power outages which have plagued the Great Jakarta area over the past two months.

Companies wishing to take advantage of the reduced import duty must contact the Investment Coordinating Board (BKPM).