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Indonesia's plastic, sweet beverage excise to cause more problems than it solves

Jakarta Post - December 7, 2023

Deni Ghifari, Jakarta – Industry players have complained about a planned excise tax on plastic products and sweetened beverages, arguing it will not solve what it is intended to and will cause other problems in the process.

Indonesian Olefin, Aromatic and Plastic Industry Association (Inaplas) secretary-general Fajar Budiono told The Jakarta Post on Monday that the levy on plastic would stoke inflation, because most products incorporated plastic, one way or another.

"This won't solve anything. It will [instead] cause new problems," said Fajar.

Consumers would bear the burden of the higher product costs, while micro, small and medium enterprises would be hit the hardest, as they were the biggest users of plastics, said Fajar. Packaging currently accounted for around 5 percent of product prices, Fajar said, estimating that the levy would drive that up to 10 or 15 percent.

He went on to claim that the excise would entirely reform the plastic industry landscape and predicted that most producers would shift to trading as their core activity, which would result in greater plastic product imports.

"Food and beverage producers might then not produce here. They would relocate to another ASEAN country, for instance to Johor Bahru [in Malaysia] and [import] through Batam. That [would be] cheaper," said Fajar.

He added that the transition would not be smooth either, as producers would need to invest in new machines for the manufacture of products unaffected by the levy, and in new space required for that. He estimated that the transition would take up to five years, given that just procuring the equipment would take a full year.

An excise on plastics and sweetened beverages had been in the cards since 2016, but no real steps had been taken until 2022, when the government included a revenue collection target for the levy in the 2023 budget.

The targeted amount was Rp 980 billion (US$63.24 million) for plastics and Rp 3.08 trillion for sweetened beverages. However, the government has yet to issue any implementing regulation specifying which products would be subject to the levy.

With no revenue collected so far, the government set the revenue target for 2023 at zero in a revised budget plan in mid-November and stated that the policy would not be rolled out this year, citing concern about maintaining economic activity.

Nevertheless, revenue targets for the levies have been set again in the 2024 budget plan, which President Joko "Jokowi" Widodo signed off on through Presidential Regulation No. 76/2023 last week.

The collection targets are Rp 1.85 trillion for the plastic excise and Rp 4.39 trillion for sweetened beverages.

Despite the numbers penciled into the budget, it remains uncertain whether the government will follow through with the plan.

"For next year, we will monitor the state of the global economy and all the developments," Customs and Excise Director General Askolani explained in a press briefing on Nov. 24.

Liquid candy

Business representatives have also expressed doubts about the effectiveness of an excise on sugary drinks.

Speaking to the Post on Tuesday, Soft Drinks Industry Association (Asrim) chairman Triyono Prijosoesilo said his organization did not see the levy solving issues of noncommunicable diseases (NCDs) like obesity and diabetes.

"NCDs are a condition that stems from multiple factors, such as lifestyle, genetics, etc. Indonesia does not have any data that conclusively links sweetened beverages to diabetes and [other] NCDs," said Triyono.

He added that obesity levels in other countries, like the United States and Mexico, had kept increasing despite the sugar tax, rendering "the policy ineffective".

While the Post could not independently verify that claim, some studies conducted in other countries point to reduced consumption as a result of sweet drink taxes.

Priyono pointed out that the financial state of the sweetened beverage industry was not strong, with a growth rate of 0 percent on average in the last three years, as sales volumes dipped in nearly all categories.

"And if the government puts [the levy] in place next year, it is certain that the industry will experience a sharp contraction that will impact employment as well as the beverage industry investment climate," said Triyono.

Center for Indonesia's Strategic Development Initiatives (CISDI) research and policy chief Olivia Herlinda said the excise would certainly help control sweetened beverage consumption, which had seen a rising trend as of late.

"The consumption is so uncontrollable in Indonesia, especially in big cities," Olivia told the Post on Monday, before saying the policy could push down consumption by 17.5 percent.

Olivia noted it remained unclear which beverages might be subject to the excise, given that the implementing regulation was still being discussed in multiple ministries.

Olivia said she preferred a levy designed to incentivize the industry to produce beverages with less sugar.

She went on to say that there was no conclusive evidence on how similar policies in other countries correlated to industry employment.

"In some countries, it pushed the availability of healthier [product] options," said Olivia, adding that she deemed Rp 4.39 trillion a fair and attainable amount.

Source: https://asianews.network/indonesias-plastic-sweet-beverage-excise-to-cause-more-problems-than-it-solves