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View all search resultsDigital goods duties: Who picks up the tab?
If it succeeds in implementing its plan, Indonesia would become the only country to violate the WTO moratorium and risk being sued by other countries. Apart from that, we must figure out who will actually be picking up the tab.
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The government believes imposing the duties will “create a level playing field between online and offline sellers and increase fiscal revenues.” (Shutterstock/File)
I
ndonesia is moving forward with its plan to impose import duties on digital products next year. As reported in this newspaper, the duties will be imposed despite the World Trade Organization’s (WTO) e-commerce moratorium that member countries would not impose customs duties on electronic transmissions.
The government believes imposing the duties will “create a level playing field between online and offline sellers and increase fiscal revenues.” If it succeeds in implementing its plan, Indonesia would become the only country to violate the WTO moratorium and risk being sued by other countries. Apart from that, we must figure out who will actually be picking up the tab.
Duties are taxes imposed on buyers for every unit of goods purchased, regardless of whether the goods are physical goods or services, analog or digital. Whether it is Italian wine or Hungarian software, duties are a penalty that is almost never borne by sellers/suppliers alone.
Let us suppose that, without duties, the demand for Italian wine in Indonesia is US$7 a bottle for 1,000 bottles a year. When the government imposes a duty of, say, $2 per bottle, the demand for the wine will fall. Let us imagine that the new equilibrium sets demand at 800 bottles a year at $6.50 a bottle, because decreased demand tends to bring down the price. Buyers now pay $6.50 + $2 = $8.50 per bottle, while suppliers receive $6.50. This means that the burden on buyers is $1.50, calculated by subtracting the old equilibrium ($7) from the new price ($8.50). On the other hand, the burden on suppliers is $7 - $6.5 = $0.50. In this example, the higher share of the duty falls on the consumer’s shoulders.
