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Tears in our Beer

Beer Production Declining Due to Large Increases in Excise Tax Rates on Alcoholic Beverages.

(7/31/2011) Indonesia’s beer industry sales have declined following increases in excise taxes imposed on all forms of alcoholic beverage on April 1, 2010.

NusaBali quotes the spokesman of the Indonesian Malt Beverage Producers (GIMMI), Ipung Nimpuno, who claims that Indonesian beer producers have increased their prices between 25-35% since the increase in excise tax. Meanwhile, producers have, on the average, used this increase to cover 56% of the increase in excise tax on beer products. Beer producers, unprepared to pass along the entire burden of the higher excise tax, have shouldered part of the increase tax cost while at the same time suffering reduced profit margins.

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“The companies (beer producers) have a limited capacity to absorb the tax increase by reducing their profit margins,” explained Nimpuno. The ability to subsidize the higher tax rate is, however, strictly limited, and many beer producers have also been forced to seek out greater efficiencies in the cost of production.

“It is our hope that this year and next year that the government will not increase our (tax)  burden, because if the excise tax goes up again it will create an unhealthy business climate,” said Nimpuno.

Nimpuno also pointed out that the sudden and dramatic rise in the cost of alcoholic beverages has also increased the amount of illegal “moonshine” produced across the nation. “In 2009, there were 70 people who died from drinking black-market alcohol. From 2010 to mid-2011 the number who have died from tainted and unregulated alcohol production have increased to 250,” emphasized Nimpuno.

Effective April 1, 2010 the excise tax on beer increased between 214% to 340%. The excise tax on wines domestically produced wine also increased between 300% - 500%. The excise tax on domestically produced spirits increased 188% .

Meanwhile, the tax on imported beer remains unchanged. As shown on the accompanying  chart on balidiscovery.com, the increase in excise tax on imported wine and liquor was somewhat less than the increase imposed on domestic producers.