I

ndonesia might suffer an annual loss of Rp 700 billion (US$72.4 million) if the government insists on imposing an excise of Rp 3,000 (31 US cents) per liter on carbonated drinks, a study by a University of Indonesia (UI) research institution says.

The UI’s Institute for Economic and Social Research (LPEM-UI) predicts that, rather than reaping the expected Rp 590 billion income annually, the imposed excise might lead to a 37.8 percent price hike and a 64.9 decline of demand that would drag down the country’s income from value-added and company taxation incomes.

“The government might lose up to Rp 526.7 billion in income from value-added tax [VAT] and Rp 736.1 billion from company tax. They will also have to bear excise collection expenses of Rp 74.7 billion. The country may end up facing an annual loss of Rp 783.4 billion,” Eugenia Mardanughra, the head of the research institution, told a conference.

The Finance Ministry’s fiscal agency head, Bambang Brodjonegoro, said in a hearing with the House of Representatives’ Commission XI on finance in December that the government planned to charge an excise on carbonated drinks because the products were duty-eligible goods as stipulated in the 2007 Customs Law.

Bambang said the criteria stipulated in the law included products whose consumption needed to be controlled and distribution needed to be monitored due to the impact on consumers and the environment, plus goods that needed to be taxed to maintain healthy competition.

According to ministry data, the industry reaps Rp 10 trillion in annual turnover based on an average price of Rp 8,600 per liter. Consumption of carbonated drinks accounts for only 3.8 percent or 790.4 million liters of all beverages consumed per year.

Bambang said, therefore, that the government would impose a duty ranging from Rp 1,000 to Rp 5,000 on carbonated drinks to control consumption and obtain more income. Eugenia, however, said the duty would not only reduce the country’s income but also generate unemployment. “The carbonated drinks industry may have to bear Rp 5.6 trillion in annual losses. Also, because the industry uses other industries such as the chemical, glass and plastic industries, the imposed fee could lead to a decline in the country’s overall production costing up to Rp 12.2 trillion. Furthermore, around 80,000 people might lose their jobs due to potentially worsening economic conditions,” Eugenia said.

“Even if the reason is to reduce public consumption due to the health impacts, the government should consider the other sectors that will be impacted by the policy,” she added.

Seventy-one countries, including India, Laos, Mexico, Thailand and the US, have applied similar regulations, mostly due to the impact on the environment and health. (aml)