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In for more excise taxes
In distinction to income and value-added taxes, the main purpose of excise taxes is to control the consumption of goods with adverse health, environmental or social impacts.
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Britain, on April 6, 2018, joined France, Norway and Mexico in rolling out a sugar tax on soft drinks in an attempt to tackle obesity and tooth decay in children. (AFP/Paul Ellis)
T
he Harmonized Tax Law amends the 2007 Customs and Excise Tax Law to authorize the government to change the types of goods subject to excise tax, which were previously limited to tobacco products, alcoholic drinks and ethyl alcohol.
Certainly, the government will most likely add to the list and the rate, because excise tax accounts for more than 45 percent of total tax revenue and the government is strapped for resources to cope with the fiscal deficit, which by law must be cut down from an estimated 5 percent of gross domestic product (GDP) by 2022 to 3 percent of GDP 2023.
The government has set the excise tax revenue target for 2022 at Rp 204 trillion (US$14.50 billion), 13 percent higher than the estimated Rp 180 trillion this year. This increase is indeed quite significant compared to the average annual rise of about 5 percent over the past five years.
The bulk of the increase will still be derived from cigarettes, whose excise tax is usually raised annually. The government has yet to announce the new excise tax rate for 2022, but last year, the cigarette excise tax, which usually accounts for more than 90 percent of total excise tax receipts, was increased by 12.5 percent. However, the government needs to reduce the layers of excise tax rates on cigarettes, which now total 10, to remove loopholes for producers to circumvent the highest rate.
An expansion of goods subject to excise tax also seems justified because, compared to ASEAN countries such as Malaysia and Thailand, Indonesia has relative few goods subject to such taxes. The two regional countries collect excise tax on tobacco products, liquor, cars, motorcycles, certain plastic products and certain kinds of clothing.
But Indonesia is not likely to impose excise taxes on motor vehicles, even though it has long been recommended by the World Bank and International Monetary Fund, because the Harmonized Tax Law will introduce carbon tax on polluting sectors, starting with coal-fired power plants in 2022 and other sectors in 2025.
In distinction to income and value-added taxes, the main purpose of excise taxes is to control the consumption of goods with adverse health, environmental or social impacts.
Therefore, the most likely candidates for new goods to be subject to excise tax are plastic packaging and sugar-sweetened beverages, which have long been the subjects of public debate.
Many countries have banned plastic packaging outright, and the Jakarta municipal administration has also banned the use of plastic packaging at supermarkets. But the impact on the environment is still negligible because most other users, including households, are still not touched by the ban.
Excise taxes on sugar-sweetened beverages (SWB) are also justified for health reasons, as the prevalence of diabetes mellitus and obesity among the young population in the country has steadily increased due to excessive sugar consumption.
Given their characteristics, which fit in well with the purpose of excise taxes, plastic packaging and sweetened beverages are indeed the best candidates for new excise tax objects.
