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Indonesia Eximbank news and announcements.

29 Jan 2019

Government Policies in Reducing High Imports

A country’s trade balance is not only influenced by increasing and decreasing export fluctuations. Import numbers also play an equally important part in affecting whether a state will experience surplus or suffer from deficit in international trade. When a country experiences an increase in export, if followed by an increase in import that overweighs the amount of exports, a deficit in the country’s balance of trade would still occur. Similarly, an increase in imports followed by less exports would lead to larger trade deficits. Indonesia finds itself still facing these problems.

In order to combat deficit due to high imports, the Indonesian government has enacted several important policies in 2018. Some of these policies include the following:

  • Raising taxes for imported commodities

The Indonesian government has imposed higher taxes for 1,147 imported commodities beginning in September 2018. Among these commodities are various types of consumer goods with an increase value ranging from 1.5% to 7.5%. Imported goods that actually can be produced domestically have experienced a tax increase from 2.5% to 10%. This tax increase does not apply to raw materials.

  • Requiring the use of B20

B20 is a fuse between diesel fuel and 20% biofuel made from palm oil. The Indonesian government requires the use of B20 for several business entities that meet the requirements, including those with a refinery, produce diesel oil, and companies importing diesel oil. Businesses that do not comply with this B20 regulation will face administrative sanctions, where they are fined IDR 6000 per litre and risk having their business licenses revoked.

  • Increase local content requirement (TKDN) for infrastructure

When national infrastructure projects make use of imported materials for the majority of its construction, it puts a heavy burden on the state’s trade balance. To avoid this, the government has reassessed a number of infrastructure projects, and has assigned several local suppliers to provide materials for these projects, especially for projects that are not urgent, but utilize many import materials.

  • Providing local goods to replace import products

With reducing imports comes the obligation to provide the nation with goods of the same nature. The Indonesian government is currently making efforts to supply domestic oil needs by enacting several policies, each aimed to increase the amount of oil and gas that must be sold to Pertamina and to change the ownership of some oil blocks.

All of the aforementioned policies, of course, are meant to suppress the current import climate. The results of these policies are less likely to be seen in the near future, as suppressing imports is long-term process and would take a considerable period of time to yield significant results.