Trade Ministry: Taxes, Not Monopoly, Reason for Smuggled Alcohol Market

by Dian Ariffahmi, Janeman Latul & Muhamad Al Azhari

Extremely high taxes on imports and weak government monitoring are the main reasons why the black market in alcohol is flourishing, a senior official at the Trade Ministry told reporters on Wednesday.

Diah Maulida, the ministry’s director general for foreign trade affairs, said state firm PT Sarinah’s monopoly as the country’s sole importer of alcoholic beverages was not the main reason for widespread smuggling.

“The current import duty for alcohol can be as high as 150 percent [of the initial bottle price levied on importers],” Diah said. “Including other taxes, [importers] could be taxed up to 300 percent. With such high taxes, who wouldn’t be tempted to smuggle products in?”

To combat smuggling, there should be better monitoring of the sector, she said. Diah made the comments a day after a high-ranking official at the Finance Ministry called for the government to end Sarinah’s monopoly.

On Tuesday, Anwar Suprijadi, the director general of customs and excise at the Finance Ministry, said the ministry had been “coordinating with fellow officials at the Trade Ministry,” urging them to issue import licenses to other businesses “so other entities could compete legally.”

Diah said there had been no talks within the Trade Ministry to appoint more importers. She said the ministry would be abiding by a 2007 presidential regulation, a revised version of the negative investment list, that puts strict investment restrictions on alcohol production.

The task of importing such products was given to Sarinah and the government put quotas on how much could be imported, Diah said.

Contacted separately by The Jakarta Globe, Jimmy Gani, Sarinah’s president director, said he would welcome a government move to do away with the company’s monopoly.

“If the government wants to open the tap, we don’t have any problems with that,” he said.

He noted that the alcohol import monopoly was previously broken in 2007, when state firmPT Perusahaan Perdagangan Indonesia was given a license to import alcohol. Local media reported that the company abandoned the business after a few months because it couldn’t compete with illegally sourced products.

Echoing Diah, Jimmy said illegal alcoholic beverages can be as much as five times cheaper than legal products because of taxes.

A study by Dionisius Narjoko and Teguh Yudo Wicaksono from the Center for Strategic and International Studies in Jakarta this year suggested that the current taxation model for alcohol products was encouraging the circulation of illegal goods.

According to the study, “under the current tax rate for alcohol products, consumers are paying as much as a 500 percent tax for alcohol,” noting that this was higher than most countries.

A thriving black market meant the government was missing out on billions of rupiah in customs duties that could be levied on legal suppliers, the study said.
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