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Delhi Wine Club

Posted: Thursday, 08 July 2010 10:40

Feature: Strange Case of Indonesian Wine Taxes

Although there is no direct comparison between the Indonesian taxes being as high as in India, the recent elimination of import duties and luxury tax and increasing of excise duties on all wines, making cheaper wines more expensive, may have a merit for India but the administration of the system seems to be a strange case even for a country like India, says Subhash Arora

Till March 31 this year, 250 million- strong Indonesia, with a Muslim population of 97% on paper, imposed heavy import duties of 150% to discourage the use of alcohol. There was an additional 40% luxury tax on the total cost. Still added further was a $2 excise duty per bottle, followed by 4% sales tax. Since April the import duty has been waived along with the luxury tax but a fixed excise duty of $5.50 has been imposed uniformly on all wine imports, according to Alexander Effendi, Vice President of the Indonesia Sommelier Association.

Paradoxically, the wines may become more expensive than before, definitely the cheaper wines like B& G, Jacobs Creek etc. Alexander explains, ‘previously the under invoicing was the prevalent and accepted norm of working. It was normal to declare the value of a case at $ 9-10 when in practice it would be $20-25. By ‘managing’ the customs department the price of even the most expensive wine like Petrùs could be declared at around $60 a case. There is an estimated cost of $5000 a container (one adds a ‘ghost cost’ of around 20% on the total actual cost) to bring in the wines and if you do not toe the line, you would be harassed anyway, he says.

The harassment could mean not only the department delaying your customs clearance, but by assessing the prices higher than declared price, there would be 1000 % penalty on the tax avoided according to the customs officials. This is the procedure followed by most of the legal importers- of which there are around 15, according to Alexander.

There are over 100 illegal ones-those who smuggle wines through boats from Malaysia and Singapore, as a few of the sources. They openly used to sell wines and spirits to the hotels and restaurants till recently when the government clamped down and the hotels were warned they could lose license as well as face jail as punishment. Whiskey and liquor which can be refilled in the bottle are still bought mostly through the illegal channel (since the legally bought bottle could be refilled easily with the bootlegged liquor) but purchase of cheap wines from illegal sources as was the practice, has dried up due to the fear of the government.

The government has been getting tougher gradually in an effort to clean up the highly corrupt system which in true Bollywood style has people with shady dealings at top levels in police, customs and various other government departments in cahoots. President Dr. Susilo Bambang Yudhoyono who is in his second term has been tightening the screws with the direct action and collaboration with Ms. Sri Mulyani Indrawati, till recently the Minister of Finance. Known as the iron lady, she is known to have had got top ex -police, ex-customs top brass and many rich and influential people behind bars on corruption charges, says Alexander.

Currently, the government has minced no words in announcing that hitherto unpracticed law of 5 years in jail for anyone found giving bribe and 10 years for the government servant accepting the bride, has made the old system unworkable, at least for the time being.

To make things worse, the lady minister has been offered a job as a Group Managing Director in the World Bank. After a short gap, a new minister was appointed about a month back. A businessman by profession, he has yet to give the formal go-ahead to the duty waiver scheme while the customs department refuses to clear any shipments with the wines stuck at the bonded warehouse for almost 3 months.

Meanwhile, the smuggled wines are still doing good business, claims Alexander. How much wine is being produced or imported in Indonesia, asked delWine. ‘It is impossible to guess the number,’ he says. ‘Officially the government allows a quota of only 250,000 cases of wine to be imported annually, in deference to the Muslim vote bank. But they are being imported manifold by the illegal importers though the number has come down due to the recent strictness, even though the clubs and restaurants are still buying the bootlegged wine as it is much cheaper.

How about domestic production of wine? ‘A small quantity is being produced in Bali. Actually, some people have very small experimental and cosmetic vineyards. They import cheap bulk wine from Australia and bottle it as ‘Made in Bali’ wines. Since local wines sell only to the tourists who want to try a local wine, the prices of these wines have been kept a couple of notches cheaper than the imported wines-so the domestic ‘producers’ are not complaining.

Alexander should know. Starting in the retail business in 1998, he started importing in 2005 and paid ‘hundreds of thousands of dollars in fine’ as he was not able to strike the right chords with the right people initially. Moreover, frustrated with regular change of the government policies and the constant challenge of proper handling at different levels,  he discontinued the import business.

There does seem to be shades of similarity between Indonesia and India and it may be worth considering a similar change in the structure of imported wines as followed by them, thus protecting the Indian wine industry and giving some respite to the expensive wines.

Subhash Arora


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