BUSINESS ENVIRONMENT

Tariffs

Indonesia has cut its tariffs on food and other imports sharply during the last ten years. Effective from 1 February 1998, tariffs on all food items were reduced to a maximum of 5%, with just a few exceptions. A summary of current tariff rates on food products is set out in Table 5.1.

The rates summarised in Table 5.1 are so called ‘applied’ or actual tariff rates. The ‘bound’ rates, which are the maximum tariffs Indonesia has committed to as part of its membership of the WTO, are significantly higher.* For most food products, the bound rate is between 27% and 60%, but the bound rates are significantly higher for rice (160%), milk and cream (210%) and alcoholic drinks (over 100%).

A gap between the bound and applied tariffs means that, in theory, the Indonesian Government has scope to raise applied tariffs at some point in the future.

Summary of tariff rates on food imports

Tariff quotas
The WTO sometimes permits the use of tariff quotas when, for a base volume of imports, tariffs are set at a lower level, but for imports above the base volume, a higher, sometimes much higher, tariff rate can be applied.

Indonesia has such a system for milk, cream and related products but, as of May 2003, this was not being applied.

Indonesia’s Regional and Multilateral Agreements

Indonesia’s tariff reductions are the result of both unilateral decisions taken by its government and obligations under a number of international and regional agreements and arrangements. In recent years these have included:

AFTA (ASEAN Free Trade Agreement): under AFTA, Indonesia has cut tariffs on imports from Singapore, Thailand, Malaysia, Brunei and the Philippines to no more than 5%

APEC (Asia-Pacific Economic Cooperation): which has set the goal of open and free trade by 2020 for its developing country members, such as Indonesia

WTO (World Trade Organisation): Indonesia is an active member of the WTO and is implementing measures to liberalise trade and investment that were provided for in the Uruguay Round agreements and subsequently

IMF (International Monetary Fund): Indonesia’s program of major reductions in import tariffs that had begun in 1995 was reinforced in the IMF program for Indonesia that was established in 1997–1998. Indonesia withdrew from its IMF program in December 2003.

Specific duties
The percentage tariff rates summarised above are called ad valorem tariffs (or duties). However, Indonesia has applied fixed or specific duties on several imported food products. In some cases, the Indonesian Government has said this is in order to avoid under-invoicing practices. While rare, specific duties are in place on rice and sugar:

  • For rice and rice flour, the import duty rate is currently set at Rp430/kg.
  • Specific duties on raw sugar and white sugar were set at Rp450 and Rp534/kg respectively
    in June 2002 and were further increased to Rp550 and Rp700/kg respectively in March 2003.

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