T

he government may delay its plan to charge luxury goods sales taxes (PPnBM) on cell phones due to concerns over a potential influx of illegal imports.

The Industry Ministry'€™s director general for high-technology priority industries, Budi Darmadi, said Wednesday that based on the ministry'€™s assessment, the application of the taxes would only encourage illegal imports, as has been seen in the past.

'€œThe imposition of the taxes will be effective only if it is supported by the registration of IMEI [International Mobile Equipment Identity] in every device by domestic cellular operators,'€ he told reporters at his office.

At present, cell phone operators are still studying technical details to exert tight controls on cell phones through IMEI, including how to apply it in circulating phones and how much transition time would be sufficient for users to adjust, according to Budi.

The plan to place taxes on cell phones, which could amount to 20 percent of sales prices, was earlier proposed by Industry Minister MS Hidayat and Trade Minister Muhammad Lutfi in a bid to spur growth in the domestic industry.

Some local manufacturers like PT Hartono Istana Teknologi and PT Tera Data Indonusa are expanding their facilities to tap into the surging cell phone market in Southeast Asia'€™s biggest economy, which is home to more than 240 million inhabitants.

The local component industry is also gearing up, producing parts from liquid-crystal displays (LCDs) to cameras.

The government stepped up its battle against illegal cell phone imports in early 2012 by requiring importers to register with the Trade Ministry, which is set to apply stricter requirements for import license applications.

In addition, the delivery of the gadgets should be realized through nine appointed airports and seaports stretching from Jakarta to Makassar, South Sulawesi.

The new tax policy has been met with strong opposition from business players, particularly vendors grouped under the Indonesian Cell Phone Association (APSI), as it will result in higher phone prices being transferred to customers and could trigger increased illegal imports.

Despite the stricter efforts to curb illegal phones, they still represent 30 percent of national sales, with the figure likely to jump to half the size of annual distribution when the taxes are put into place, according to APSI.

That may serve as a major blow to total cell phone sales, which hit 55 million units last year, with a revenue of above US$4 billion.

Imported cell phones, like other consumable goods, earlier this year were already hit with a 7.5 percent tax, up from 2.5 percent previously, as the government tried to overcome the widening trade deficit.

In response to the issue, Lutfi shared a similar view to that of the Industry Ministry, saying that a delay was expected. However, the trade minister declined to elaborate further.