Mobile Device Tax Has Negative Outlook
Indonesia is considering a 'luxury tax' on all mobile devices rather than just high-end smartphones in an attempt to boost local manufacturing. BMI forecasts show smartphones will continue to increase as a percentage of the overall mobile unit sales in Indonesia and believes the higher tax may lead to a larger grey market for the most popular devices.
A possible 20% tax on devices over IDR5mn (USD442) was under consideration in October 2013, even after the existing tax on imported consumer goods rose to 7.5% from 2.5%. The smartphone will join other products such as luxury cars, perfume and musical instruments at the higher tax rate. The government first announced its plans in relation to smartphones only, saying the increase would boost tax revenue and decrease the trade deficit. However, the Jakarta Post suggested on April 7 that all smartphones would be considered luxury goods and be subject to the tax.
Indonesia is home to major handset manufacturer Foxconn, which agreed in February 2014 to invest USD1bn in a smartphone manufacturing unit in the country. The company will certainly benefit from any move that increases the price of handsets in Indonesia as the tax hike is expected to encourage greater growth in the local market. The government's decision to encourage greater sales of locally-produced smartphones through taxation may have been an important factor in the manufacturer's decision to locate in Indonesia.
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