T

he government is reviving an idea to impose luxury goods sales taxes (PPnBM) on cell phones in a move to spur growth in the domestic industry.

Industry Minister MS Hidayat said on Thursday that discussions on the proposal were underway among related ministries. '€œWe are still assessing to what extent an increase in cell phone prices triggered by the new tax could stimulate illegal imports,'€ he said in a text message.

Import taxes on consumption goods, which were raised last month from 2.5 percent to 7.5 percent, had so far been considered sufficient to help grow the local cell phone industry, Hidayat added.

If the luxury tax proposal is accepted, the 20 percent tax will affect smartphones that are priced above Rp 5 million (US$441.56) per unit. At present, domestic manufacturers mostly make medium- and low-end cell phones and source a wide array of components through imports.

The idea of charging the luxury goods sales tax first emerged last year, but was turned down over concerns of illegally-imported cell phones potential flooding the domestic market.

In early 2012, the government stepped up its fight against illegal imports by requiring importers to register with the Trade Ministry, which is set to issue import licenses.

Last month, the government also increased import taxes on consumption goods, including cell phones, as it struggled to push down the current-account deficit that has resulted from widening trade deficit.

Indonesia, with Southeast Asia'€™s largest economy and a population of more than 240 million, is one of the world'€™s biggest and most promising cell phone markets. The number of subscriber identification module (SIM) cards sold nationwide exceeded 120 percent of the total population as of 2012.

Sales of high-end cell phones totaled around 8.25 million units, representing 15 percent of overall cell phones sold across the country. Imports of smartphones reached a value of approximately $3 billion last year,

The new tax may lower annual imports by $1.8 billion, according to local media reports.

Distributors and importers of cell phones expressed mixed views over the government'€™s plan to place the 20 percent tariff on smartphones. Chairman of the Cell Phone Dealers and Importers Association (Aspiteg), Alie Cendrawan, supported the plan, saying that the measure would be effective in accelerating expansion in the domestic cell phone industry by pulling in investment.

'€œFor several years, some investors have expressed their interest in setting up facilities in Indonesia but, until now, none [of the plans] have been realized,'€ Alie told The Jakarta Post. '€œInvestment will bring significant multiplier effects, particularly job creation, and even create opportunities for us to export locally-made cell phones,'€ he added.

Refuting concerns over a potential surge in illegally-imported cell phones, Alie said that the problem could be addressed through measures such as differentiations in the physical appearance of locally made and imported products.

A spokesman from Indonesia'€™s major cell phone distributor and retailer PT Erajaya Sembada, Djatmiko Wardoyo, voiced a dissenting view, saying that the new tax would directly impact consumers because sellers would adjust prices considerably.

'€œWith a marked gap between cell phones sold in neighboring countries and Indonesia, illegal imports will be inevitable,'€ he said, adding that illegal imports would be hard to manage across the country.