back to article Indonesia considers smartphone tax to spur local mobe-makers

In a move which won’t go down well with foreign smartphone-makers the Indonesian government is planning to levy a 20 per cent tax on all imported mobile phones, in a bid to support domestically made handsets. The luxury goods sales tax (PPnBM) was originally to be levied only on smartmobes costing above Rp 5 million (£260). …

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Won't work.

They tried it in Australia by taxing imported cars to put locally produced cars in a better light, well, a better price anyway.

Result: Allowing for the general downturn in the auto industry, local factories are closing down and imports are going up to compensate.

YYYep, that worked out real well.

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Re: Won't work.

"YYYep, that worked out real well."

That's certainly how most protectionist policies pan out. But there's a subtle difference here, in that China has an under-valued fixed exchange rate, enabling it to under-cut competitors, and to an extent justifying duties (that mostly aren't levied) on everything they produce and sell to developed economies. Unfortunately Indonesia isn't part of the developed world with its over- or fairly-valued currencies, and the Indonesian Rupiah is by any sensible measure (eg the Economist Big Mac index) undervalued by even more than China's.

What this means is that Indonesia is saying "our economy is uncompetitive even with a currency undervalued against China's, but rather than address the causes of our uncompetitiveness, we'll make imports more expensive". Invariably, as with your example, the sheltered industry and government will see this a reason not to improve, and all that happens is consumers pay more, but ultimately the protected industry withers and dies.

Interestingly the bottom of the league table of relative mis-valuations of currency is occupied by India. It doesn't look to me that under-valuing their currency and protecting domestic industry has given India a vibrant tech hardware and mobile phone sector, given the ongoing disputes between the state and the Nokia plant, and the complete absence of Indian handset exports.

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Re: Won't work.

Well.. sure it did. The monies paid in tax went into government coffers. As long as the money rolls in, they don't really care where it comes from.

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Supporting domestically made handsets?

The Indonesian government is planning to levy a 20 per cent tax on all imported mobile phones, in a bid to foster the local black market.

Here, fixed that for you.

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Anonymous Coward

WTO?

Indonesia has been a WTO member since 1 January 1995. One might question whether such a tax is a WTO violation.

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Re: WTO?

"One might question whether such a tax is a WTO violation."

Against the guiding principles, yes, But there's plenty of caveats and work arounds for developing countries, added to which the developed world has plenty of tarrifs on exports from the developing work. When you hear about a WTO dispute, it's usually because a country has reneged on a previously signed binding commitment to reduce or eliminate barriers to trade - either domestic subsidies or import taxes.

This is why you hear about the various rounds of WTO talks, as the organisation tries to eliminate barriers to trade.

As a single organisation the WTO has probably done more to address global poverty than any other (and far more than all NGO's and government foreign aid programmes), and I'll take my hat off to them for that. On the opposite side of the coin, it is because of reducing trade barriers that we suffer from the effects of globalisation and offshoring on domestic employment markets.

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