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Indonesia Confirms Luxury Tax Cuts

by Mary Swire,, Hong Kong

12 June 2015

The Indonesian Finance Minister, Bambang Brodjonegoro, has confirmed that the Government will shortly remove luxury goods tax from all goods, including electronic and high-end branded consumer items, except for cars and aircraft.

The new regulations are designed to encourage consumer spending and boost the Indonesian economy. Indonesian economic growth fell to 4.9 percent in the first quarter of 2015, the slowest rate of growth since 2009.

During a press briefing on June 11, the Minister said that the Government wants to maintain the purchasing power of people and encourage domestic industry. Furthermore, he hoped that removing the high luxury tax rates could improve tax compliance.

Brodjonegoro explained that the move was intended to deter people from buying luxury goods abroad. He gave the example of women buying handbags from Singapore, where they had been cheaper.

In addition, the changes are not expected have a significant effect on the Government's target to raise tax revenues by some 30 percent, as the tax loss from the luxury tax cut should only cost around IDR1 trillion (USD75m) in the current fiscal year.

In April 2010, the maximum rate of the luxury goods tax was increased from 75 percent to 200 percent. However, the rates were adjusted in 2014 so that the tax ranged from 10 percent to 125 percent.

TAGS: compliance | tax | tax compliance | luxury tax | ministry of finance | tax rates | Indonesia

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