T

he government has temporarily scrapped import duties for 182 raw materials and capital goods to lower costs for local manufacturers, expecting to increase local product competitiveness amid flooding imports and a widening trade deficit with China, officials say on Tuesday.

On the other hand, the government raised import duties for eight food items to 10 percent from 5 percent to “protect local downstream industries from an invasion of imports of such products”, Finance Ministry’s Fiscal Policy Office (BKF) acting chief Bambang Brodjonegoro said.

The 182 products, which will be exempt from import duties between April 18 and Dec. 31 this year, include 59 items in the chemical industry, one food item (soybean oil), 91 machinery items, 16 electronic items, 13 shipping items.

As of Jan. 1, 2012, import duties for all of the goods will return to 5 percent.

A ministerial decree (PMK 80/PMK.011/2011) was issued for the new policies.

“We cannot avoid the fact that we still import raw materials, especially capital goods. To maintain our products’ competitiveness, we must give incentives. In this context, we must understand that local products must be able to compete, especially with Chinese products,” Bambang told a news conference at the Finance Ministry.

The import duty change comes on the heels of a widening trade deficit with China in recent years that many businesses say is partly due to cheap Chinese products flooding the Indonesian market since the implementation of the ASEAN-China Free Trade Agreement on Jan. 1, 2010.

A recent Industry Ministry survey showed that the free trade pact has led to declining sales of local products in the domestic market, with textiles, furniture, metal, machinery and electronics producers suffering the most.

Under the new policy, chemicals used in textile processing, such as methanol and paraformaldehyde, and machinery for drying, washing, bleaching and dyeing will be freed from import taxes.

The new policy also exempted from import duties indefinitely chemicals and goods used for filmmaking to help boost the domestic film industry after criticism in recent months that the cost of producing movies domestically was far higher than importing movies.

Cruise ships, tankers, vessels, tugs, dredgers, floating docks and floating and submersible drilling rigs will also be exempt from import duties, in regards to cabotage, a maritime principle which became effective on May 7, prohibiting foreign-licensed ships from trading in Indonesian waters.

There are 898 ships owned by 200 companies that have changed their flags to fulfill the cabotage requirement. But they have not paid their taxes because they are unwilling to pay a 5 percent import duty, said Heri Kristiono, technical director of customs at the Finance Ministry’s customs and excise directorate general.

“Now that the duties have been scrapped, we hope they take care of their taxes, because if it passes the Dec. 31, 2012 deadline, the ships will be charged with 5 percent import duties again,” Heri told the conference.

Early this year, the government also lifted import duties for 57 food items to ensure sufficient supplies in the domestic market to tame volatile food prices that have caused surging inflationary pressures in the country.

A stronger rupiah has also resulted in a flood of imported products in the domestic market due to a cheaper exchange rate.

Bambang said that such policies might have a side effect of a potential state revenue loss, but ensured that “it will be compensated by increasing competitiveness of local products that will boost foreign exchange reserves and income from value added taxes”.