Indonesia's plan to impose a luxury tax on imported mobile phones, possibly as early as this year, is creating a stir at home and abroad. Proponents say the levy would help the country reduce its chronic trade deficit, while foreign handset manufacturers fear their sales will plummet.
Industry Minister Mohamad Hidayat and Trade Minister Muhammad Lutfi have approved plans for slapping a 20% tax on all imported phones. Some people, however, say the tax should apply only to handsets priced at 5 million rupiah ($431) or more.
Phone imports from China and Vietnam have been picking up, and the government sees the tax as a way to improve Indonesia's trade deficit, a destabilizing factor for the financial market.
Budi Darmadi, director general of high-tech industry at the industry ministry, estimates the tax would slash the country's imports of cellphones by half. This prospect alarms foreign manufacturers, who have visions of their sales being halved and warn of a surge in illegal imports if the tax measure goes through.
The Indonesian Cellular Telecommunications Association, meanwhile, opposes the tax on the grounds that cellphones are not a luxury item but a tool for supporting the country's development.
The government considered introducing such a tax last year, but it dropped the idea out of fear the move would only lend fuel to the black market. The latest effort is being driven by the desire to boost domestic production of mobile phones.
The planned tax would likely have a significant impact on Indonesia's burgeoning smartphone market.
According to research firm GfK, 21 million smartphones were sold in Indonesia in 2013, up 50% on the year and the largest figure in Southeast Asia. But there is still a lot of room for growth: Even though the 2013 sales figure is twice as large as second-ranked Thailand's, only about 20% of Indonesians have smartphones.
A drop in imports at a time when smartphone demand is taking off would provide a huge boost for local manufacturers. Four Indonesian brands, including Evercoss and Polytron, will start producing such phones later this year.
Taiwan's Hon Hai Precision Industry, the world's largest electronic manufacturing service provider, is also likely to benefit from the planned tax. Better known as Foxconn, the company is preparing to set up factories in Indonesia; it also announced a manufacturing partnership with BlackBerry, a popular brand there.
The smartphone offerings from local makers and Foxconn will primarily be priced at $200 or less. Compare that with the $1,000 price tag for even the lowest-end models of Apple's iPhone if the tax is introduced. That would deal yet another blow to the U.S. company in Indonesia, where it controls only a small percentage of the market.
The tax also spooks Japan's Sony. The company is enjoying steady Indonesian sales of high-end smartphones priced at over 5 million rupiah, which are second only to those of Samsung Electronics of South Korea. The planned tax comes just as the Japanese company is set to accelerate its smartphone business in the Southeast Asian country.