Alcohol Taxes

Mar 19th, 2010, in News, Opinion, by

The luxury tax on alcohol to be abolished, while consumers are not expected to benefit.


Bottles and Mugs!

Serious fans of beer were buoyed by Metro TV news as the Hindu holiday Nyepi drew to a close, for it was announced that the hefty tax on alcohol was to be scrapped.

But we'd scarcely cracked a celebratory bottle when a new report on the 16th brought us back down to earth with a bang - as usual, the customers are to get the shoddy end of the stick!

' Industry players and analysts on Tuesday welcomed the government’s decision to scrap a luxury tax on alcoholic beverages from April 1, but they doubted it would bring down the sales price. Currently, imbibers pay as much as 500 percent in taxes for their drinks.'

Well, let's see. Utilising my O Level Arithmetic, 500% means if the price for a bottle of...Jim Beam, just suppose...is 'currently' Rp.130,000, then if the tax disappears we should be able to rush down to that nice shop and hand over about Rp.25,000, the price of a bottle of Bintang in Pappa Cafe on Jl. Jaksa.

Sri MulyaniThat would be pleasant indeed, if injurious to the health of certain folks, but I'd happily settle for a fair deal at Rp.50,000. But what do the in-crowd have to say? Sri Mulyani seems to be on our side and

hoped that once the luxury tax was removed, the price of drinks at bars and restaurants would fall...

But her high hopes were instantly dashed when

Jimmy Gani, president director of PT Sarinah, the nation’s sole liquor importer, welcomed the tax exemption but said he could not guarantee a significant reduction in the price of a drink.

What? Of course it will. My cat can do the math! Yet neither the said feline nor I had included greed in our calculations. Jimmy went on to add

Depending on the beverage class, the tax exemption will affect the price quite a lot. However, I heard that there are plans to increase import duties, which in turn will make the tax exemption not as significant.

So does Sri Mulyani not know about these plans to increase import duty? Or does she know and just wants a headline? Or is Jimmy merely issuing a smoke-screen to avoid serious price cuts? Are there any such plans?

The Jakarta Globe gave us a break-down saying that the government currently levies the luxury goods tax of 40 to 150% on alcohol depending on its strength level. So by their reckoning, the price should still fall significantly. But here's where the report gets odd.

Teguh Yudo Wicaksono from the Center for Strategic and International Studies in Jakarta agreed.

With the tax exemption, low-priced, standardized liquor such as beer could compete in price with non-standardized liquors, namely traditional alcoholic beverages whose quality cannot be guaranteed. This means consumers will have a safer choice in consuming liquor.

However, I do not see that there will be a drastic price cut. It will depend on each liquor, as each kind has a market niche. I also don’t see that there will be a higher number of consumers for these beverages, because liquor is for a very limited market. It’s not like people who like cola will change to beer.

But why does a guy from the CSIS get dragged into it at all? Is he a known tippler? Or is there a hidden agenda? Do political analysts have insider knowledge of alcohol markets? Is the known preference among westerners for alcohol over Coke the reason for the establishment's determination not to pass on the benefits of these tax cuts to consumers?

Patience, Drinkers, no doubt all will be revealed.


23 Comments on “Alcohol Taxes”

  1. avatar Chris says:

    Q: Why won’t the prices of liquor decrease?

    A:

    Jimmy Gani, president director of PT Sarinah, the nation’s sole liquor importer,

    Clearly, he can charge whatever price he wants because there is no competition.

    I thought monopolies were common during of the Soeharto New Order, not these days…

  2. avatar ET says:

    Not much of a problem anyway as long as you have a trustworthy supplier of homemade arak.

  3. avatar deta says:

    Cutting the luxury tax with the consequence of lower alcoholic beverage price, beside resulting in the reduction of state income, will also likely create an external pressure because other countries do the opposite to lower the people’s consumption of liquor. This is probably the reason why the import duty is going to be increased to compensate this tax cut. Different title, but the result is sama saja.

  4. avatar ZZZBRILJANT says:

    Lowering the tax on alcohol would certainly not be any social
    problems, then there is no alcohol culture in Indonesia, some would
    probobly test when it is cheaper, but it is a transient problem.

  5. avatar Ross says:

    I’m reminded of a potato shortage in the UK in the 70s.
    Prices of fish n chips rocketed, but when the spuds began to flow again, the chippers refused to bring prices down.
    It became a permanent increase, because they knew the masyarakat would pay any price, bear any burden, for their fave food.
    Wicked face of capitalism!

  6. Ross,

    It’s all economics – it’s called revealed preference. It’s all about information, nothing to do with morality. Same here. The real problem is licensing – the government’s artificially controlling supply (of hard liquour), if they issued more, the price would come down. Speaking of potatoes, there was a time in the 1700s in London when gin was cheaper than clean water.

  7. avatar Oigal says:

    It’s all economics – it’s called revealed preference

    Laugh, notes from the bookstore again Assmad.

    In fact, by increasing the tax to the absurb levels (whilst leaving the product legal) based on a complete ignorance of market forces all the goverment has done ensure the development of very slick and professional blackmarket and ensure they lose their cut.

    The black market currently supplies a better product at superior pricing. There is a fine line before the risk of avoiding tax becomes an acceptable business risk managed option. No one but a few tourists (fewer by the year thanks to this kind of nonsense) pay the goverment price for grog. Want a case of the best wine, scotch just let your local black trader know and best yet they deliver.

  8. avatar ZZZBRILJANT says:

    Do not understand, Muslims do not drink alcohol, so what is the problem, the other 5.8 billion people not muslim like a drink, world population is approximately 6.78 billions of people right now.

    ok I know 50% of them Muslims make use of alcohol so it be 6,3 billion who like it.

    how many of those 69 million Indonesian Muslims are over 21 years now. 230% 60 = 138 to 138 / 2 = 69 million

  9. avatar berlian biru says:

    “they knew the masyarakat would pay any price, bear any burden, for their fave food.”

    I thought I would have found myself in that position, willing to pay whatever the price just to be able to relax with my favourite tipple, however even I have reached breaking point.

    It has been a cardinal factor of my life that I like to relax in the evening with a bottle of wine, nothing fancy, just a cheap bottle of Aussie or Kiwi plonk will do me rightly, the sort of thing that retails back home for about a fiver a bottle. I watched the prices steadily increase over the past few years and gritted my teeth and blocked my ears against the cavils of my missus but no longer. I was in a bottle shop in Kemang the other day, one offering a big sale, up to 70% off some wines. The cheapest bottle I could find was a bland, non-descript Australian chardonnay at 285,000 Rps., I gulped hard, I did the mental arithmatic and then did something I have never done in my life before, I walked out of a booze shop empty-handed.

    It will have no benefit for my health by the way, quite the contrary, because Indonesia does not tax on alcohol content but on fluid content a bottle of spirits is slightly cheaper than the wine, so now instead of a nice life affirming glass of wine, redolent of the warm Autumn slopes of some South Australian vineyard I will instead be easing away the cares of the day with the bitter fruits of the barley or juniper berry, with all the unpleasantness that entails.

    As regards the punitive taxation of drink, I do wish people would stop trying to re-invent the wheel, it’s all been done before. William Pitt the Younger took over a British Exchequer most of whose activities involved trying to stamp out smuggling on England’s southern coast as British drinkers sought to avoid the astronomical excise put on Port and Wine from France. By reducing tax to 15% in one blow he wiped out the smuggling trade while at the same time increasing massively tax revenue as the people immediately switched to the legally imported stuff.

    It’s not rocket science Sri my love, give it a try, you’ll be pleasantly surprised by the results.

    I think it should be pointed out that apparently PT Sarinah’s monopoly days are coming to an end as I believe as many as eight companies have now applied for import licences so maybe the long two year drought might finally be coming to an end.

  10. avatar Ajay says:

    I have a feeling salaries of PT Sarinah’s management will increase significantly.

  11. avatar Ross says:

    yes, Berlian, I to was shocked by te price of decent wine when I tried it a while ago. Went into Permata Hijau, staggered (not by the effects but the prices) but got one anyway, and they kindly suggested we try it.
    Sat down, had a glass, then they hit me with an extra fee for sampling the wine I’d already agreed to buy!
    Rip-off, never again!

  12. avatar Odinius says:

    A bottle of Jim Beam for RP125,000?? That’s actually quite cheap!

  13. avatar Ross says:

    Sorry, Odinius, should have said Rp.130000!

  14. avatar ET says:

    Sat down, had a glass, then they hit me with an extra fee for sampling the wine I’d already agreed to buy!

    Reminds me of when I had to pay 1.000 Rp extra for ordering a tea without sugar.

  15. avatar Odinius says:

    My fault on the number…but that’s still cheap.

  16. avatar Ross says:

    So excise duty is up threefold. So says the news, and up goes the booze!

  17. avatar deta says:

    Maintaining the state revenue and protecting health were mentioned as the reasons on JakartaGlobe. Don’t understand how it deals with the black market problem, though. Or probably after doing some re-calculations they just realized that the income contribution from this industry is so high that they’d better forget the initial purpose of scrapping its luxury tax?

  18. avatar Oigal says:

    Another poorly thought out, irrational move. Still keeps the black market in business and as we all know, that is what builds the mansions around town.

    There must have a number of officials fairly quaking at the loss of dodgy income when the luxury (call that for homes it buys for those with snouts in the trough) tax came off. Still they lobbied well and retained the status quo.

  19. avatar Harry O says:

    Anyone know where you can purchase beer brewing kit in Jakarta???

  20. avatar Suryo Perkoso says:

    Harry, you can purchase them from me….
    My Cider has also proved to be a huge hit, last batch hit 12% and was as fine as virgins water. As for protecting health, they want to try banning shite like happy soda and other assorted syrups and gunges. Just take a look at a local pizza hut plastic cheeze topped cardboard bathmat, they even coat that in HFCS.

  21. avatar Ross says:

    Good to see there are matters on which Suryo can talk knowledgeably and public-spiritedly.
    But he’d best beware the excise-man!

  22. avatar ks says:

    hi Suryo, do u sell the likes of coopers microbrew kits? or something that you put together on your own? i would like to get in touch with you, especially if you have knowledge on beer brewing (which i lack). it would be too much hassle to bring a kit home from where i am now as it is kind of bulky.

    thanks

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