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2. Abolition of luxury sales tax boosts electronic industry.

The abolition of luxury sales tax (PPnBM) on certain electronic goods has revived sales of television sets, fans, refrigerators and washing machines since early 2003. In early 2003, the government issued a fiscal stimulus valued at Rp6 trillion in the form of postponing imposition of value added tax (VAT) and a cut in PPnBM on 45 items mostly electronic goods. The policy is aimed at boosting business activities and reduce the public burden with the rise in electricity and telephone tariffs and oil fuel prices.

The policy has contributed to improving the performance of the country's electronic industry and reduced cases of smuggling of electronic products.

Foreign electronic companies notably from Japan and South Korea have also been encouraged by the policy, the Association of Electronic Companies (Gabel) said. The government, therefore, should continue its deregulation policy to cover wider sectors to attract foreign investors to the country, the association said. The government will gain in the form of more jobs and larger tax revenue, it added.

In fact, revenues in sales tax and income taxes both corporate and individual income taxes have increased compared with the previous year. The association suggested the government reduce import duties on certain components or offer incentives to encourage development of electronic component industry in the country. Component industry is considered strategic in supporting development of manufacturing industry in the electronic sector.

Compressors for example is a strategic component as it is the main component for refrigerators or air conditioners and dispensers. The market demand for compressors is strong in the country and other tropical countries. Incentive is also needed to encourage investment in television tube industry. If the two industries are given the opportunity to grow, it is not unlikely that the country would become a major player in the regional market of Asean.

Sales up 19%-82%

Sales of consumer electronic (CE) products rose by a range from 19% to 82% in 2003 from the previous year. The electronic Marketing Club (EMC) said sales of television sets, refrigerators, air conditioners, washing machines, DVD rose sharply in 2003.

Sales of TV set totaled 3.03 million units or up 19.1% from the previous year. Sales of refrigerators totaled 1.38 million units, air conditioners (AC) 461,062 units, washing machines 484,465 units and DVD 85,149 units.

Producers, however, did not find it all easy amid tighter competition with supply rising fast to exceed demand.

In addition, there are still goods found sold in the market without complying to the regulation such as in the requirement to use label in Indonesian language and requirement to provide after sales services.

Sales growing 20%

The country's electronic industry has expanded. Gabel estimated that the industry has grown by 10%-20% annually. Demand for electronic and electrical products reached Rp 30 trillion a year.

This year, demands for certain electronic products including TV sets, refrigerators, washing machines and AC are predicted to grow by 4%-10%. Based on data at the EMC, sales of TV set are estimated to reach 3.2 million units in 2004 or an increase of 8% from 2003.

The political heat with the elections in 2004 will not affect sales. In fact sales have continued to increase. TV sales are predicted to increase further partly boosted by the Euro football tournament in Portugal this year.

In the first two months of this year sales of electronic products rose 20% form the same period last year. A higher increase in sales was recorded for TV sets. Sales of TV set totaled 620,000 units in the first two months of this year or a 30% increase year-on-year.

Demand for washing machines rose by 20% to 103,000 units in the two months year-on-year. See the following table.

Exports small

The export value has almost unchanged in the past four years from the annual level of US$ 8 billion. Electronic goods are the second largest export earners after oil and gas for the country.

Gabel said the stagnancy was caused by the fact that there was almost no new investment in the sector, in addition to price fall of electronic goods. Compared with other Asean member countries Indonesia is a small exporter. Malaysia earned US$ 63.37 billion from the exports of electronic goods, the Philippines US$ 34.44 billion and Singapore US$ 88.64 billion. Indonesian falls far behind as few of its electronic goods are the products of high technology.

Foreign investment (PMA) companies accounted for 95% of exports of electronic goods. Many of the PMA companies represent major brands from Japan and Korea.

Opportunity to attract foreign investors

Dumping allegation by the United States has forced China to look for other countries including Indonesia where it hopes to be able to dump its electronic goods. In addition, the stimulus provided by the government has attracted investors from China to try business in Indonesia.

LG Electronics Indonesia has invested US$ 1 million to produce digital TV sets and US$ 3.5 million to increase production of refrigerators. Sanek also plans to invest US$ 15 million in refrigerator industry.

The investment plans are expected to encourage more investors to come tom the country. The inflow of more investment is seen as a good signal of recovery of the investment sector at least in the electronic industry.
Table--1
Condition of electronic market following the abolition of luxury sales
tax (April-November 2003)

Category PPnBM Quantity *) Highest retail rice
 (000) (xRp1,000)

 before After 2002 2003 % 2002 2003 %

TV 10% 0% 1,022 1,205 118 1,899 1,601 84
AC 20% 0% 196 281 143 3,259 2,382 73
Freezers 10% 0% 925 1.056 114 1,425 1,301 91
Washing 20% 0% 153 222 146 1.304 1.127 86
machines

Category Investment
 (4 companies)

 2003 2004

TV TV, AC
AC Nabel: 5 Toshiba: 5,3
Freezers Other: 30 Other: 50
Washing
machines

Total (US$ million) 104 170

Note: Nabel: National Gobel

Source: Electronic Marketer Club (EMC)

Table--2
Domestic electronic market,
2002-2004

 (Units)

Products 2002 2003 2004 *)

Television 2,544,934 3,031,573 3,200,000
Refrigerators 1,345,776 1,382,950 1,500,000
Washing machine 332,598 484,465 500,000
AC 259,751 461,062 475,000

*) Projection

Source: EMC

Table--3
Demands for electronic products in Indonesia,
January-February 2004

Products Demands in number (Unit)

 2003 2004

Refrigerators 194,000 238,000
Washing machine 86,500 103,000
Televisions 500,000 620,000

Source: EMC
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Title Annotation:Trade
Publication:Indonesian Commercial Newsletter
Geographic Code:9INDO
Date:Apr 13, 2004
Words:1081
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