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Taxing Problem of Getting a Drink in Bali

Luxury Tax Removal and Excise Tax Increase Spell Higher Prices Ahead for Beer and Liquor in Bali.

(3/29/2010) A recent decision by the government to eliminate luxury taxes applied on imported alcoholic beverages raised momentary hopes that Indonesia's regime of very expensive wine and liquor prices might be coming to an end. Such expectations have, however, been dashed by the government's decision to introduce a 40% excise tax that could result in a 40% increase in the cost of enjoying a libation in Bali.

The luxury import tax being scrapped cost consumers between 40% and 150% of the declared value of the alcoholic beverage. A finance ministry decree only made public on days before its implementation will supplant the cost burden of the old luxury tax with an increased excise tax of between 100% and 214%. While the proof awaits in the actual implementation, the consensus is that the cost of alcoholic beverages will soon increase up to 40%.

The increase in tax, done with little public consultation, has precipitated an uproar of protest from the nation's alcoholic beverage producers, hotels, restaurants and national tourism sector.

Indonesia's beer brewers are estimating that their annual tax burden will increase by US$86 million, an amount to be apportioned to each glass of beer consumed. In practical term, the excise tax on a liter of beer will increase from Rp. 3,500 (US$0.37) to Rp. 11,000 (US$1.17).

The tax on a liter of locally made wine will increase from Rp. 10,000 (US$1.06) to Rp. 30,000 (US$3.19). Imported wine will incur a tax increase from Rp. 20,000 (US$2.12) to Rp. 40,000 (US$4.25).

Imported spirits with an alcohol content of more than 20% will see taxes increase from Rp.50,000 (US$5.40) to Rp. 130,000 (US$13.80) per liter.

While the new decrees officially states the increase in tax is intended to compensate for revenues the government will lose from the elimination of luxury tax, the higher rates to be imposed also suggest a desire to dissuade the consumption of alcohol through the application of a "sin tax."

Joining those protesting the higher tax regime is the Indonesian Hotel and Restaurant Association (PHRI) who are calling for an urgent review the higher excise tax levels, alleging the higher taxes will cause irreparable harm to efforts to promote tourism. Representative from the countries meeting, incentive, conference and exhibition sector (MICE) are also concerned that alcohol beverage costs that are already the highest in the region will increase further making Indonesia non-competitive in the lucrative conference market.

Concerns have also been expressed that the high cost of alcohol will only serve to enlarge the already bustling black market in illegally imported alcohol into the country.