Government Alcohol Import Tax Branded a Failure

(5/11/2009)

The Monday, May 4, 2009 edition of the Jakarta Post reports that analysts have branded the current high import tax regime on alcoholic beverage as a policy failure that has "neither discouraged consumption nor maximized revenues" and, as many had predicted, has "fostered a thriving black market."

Two scholars from Jakarta's prestigious Center for Strategic and International Studies (CSIS), Dionisius A. Narjoko and Teguh Yudo said current alcohol taxes of 500%, among the highest in the world, has "failed to bring about the optimal outcome of generating revenue and protecting public health."

The two researchers have recommended to the government that the alcohol tax be reduced and any new tariff be based on alcoholic content as opposed to value. The current attempt by the government to tax the value of alcoholic beverages has fostered a system rife with misrepresentation and under-invoicing.

Not surprisingly, the total tax revenue of only US$5.8 million collected in 2008 by the sole government importer underlines, according to the researchers, that a large black market exists in smuggled alcohol. Government estimates of the size of the black market is equivalent to 60% of all alcohol consumed and represents lost tax revenues of Rp. 1.5 trillion (US$1.3 billion).

The report also suggests that high taxes do not curb alcohol consumption and, in fact, have been linked to increased usage of low-quality liquor that endangers human life. The government estimates that more than 60 people died from home-made liquor consumption in 2008.

The CSIS report blamed a lack of government knowledge of the alcoholic beverage sector as being at the root of the failed importation policy which has made the Indonesian tourism sector non-competitive with other destinations in the region.