April 24, 2014 / 7:43 AM / in 4 years

Indonesia smartphone sales could fall 50 percent under tax plan: association

JAKARTA (Reuters) - The Indonesian representatives of Apple Inc, Samsung Electronics Co Ltd and other members of a local industry group said smartphone sales could fall by as much as 50 percent if the government imposes a tax on luxury models.

Women listen as a Samsung employee provides instructions on using their new Galaxy smartphones in Jakarta, April 11, 2014. REUTERS/Beawiharta

The government is considering a 20 percent tax for smartphones retailing at or above 5 million rupiah ($430), which would make Indonesia the most expensive country in Asia to buy an Apple iPhone 5s.

The tax would be part of efforts to protect domestic brands such as Evercoss Mobile Phone and MITO Mobile, and slow a surge in imports that has caused a deficit in the country’s current account.

The tax would likely be voted on after a new government takes office in October, officials said, and would follow similar action in the auto industry where this month the tax for some luxury cars rose to 125 percent from 75 percent.

“The purpose is to damp the influx of import products since domestic manufacturers only produce low-priced handphones,” Budi Darmadi, director general at the Ministry of Industry and Trade, recently told Reuters.

The Indonesia Cellphone Association said the tax would be detrimental to the smartphone industry, which researcher IDC said was worth around $1.4 billion last year on shipments of 10.8 million units.

“If the government applies the smartphone tax ... it will increase illegal phone sales in the black market and cut sales of legal phones by up to 50 percent due to the different prices,” association Chairman Hasan Aula told Reuters.

Aula is also vice president of mobile phone distributor PT Erajaya Swasembada.

PT Samsung Electronics Indonesia Vice President Lee Kang Hyun said the tax would make foreign investors rethink putting their money into Indonesia. He declined to say whether the tax would have an impact Samsung’s investment in the country.

Uncertainty surrounding the tax could delay the construction of a local factory by Taiwanese mobile component maker Hon Hai Precision Industry Co, industry officials said. A Hon Hai spokesman declined to comment.

Local manufacturer PT Aries Indo Global, however, said the tax could help it make 5 million Evercoss phones a month within the next few years compared with 1 million at present, said Aries Director Edward Sofinanda.

Additional reporting by Yayat Supriatna and Rieka Rahadiana in JAKARTA and Faith Hung in TAIPEI; Editing by Christopher Cushing

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