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Indonesia plans levy on sweetened, carbonated drinks

Publication Date : 12-12-2012


In an attempt to control the consumption of sweetened, carbonated beverages, Indonesia is planning to impose a levy on the drinks which, if consumed, are believed to negatively impact people's health.

Finance Ministry fiscal agency interim head Bambang Brodjonegoro said in Jakarta yesterday that consumption of sweetened, carbonated beverages needed to be controlled because of health concerns.

"Based on the report compiled by the National Drug and Food Monitoring Agency, excessive consumption of sweetened, carbonated drinks can damage the kidneys, increase the risk of diabetes, trigger uric acid, disturb the functions of the stomach, liver, intestine and cause obesity," Brodjonegoro told legislators during a hearing with the House of Representatives' Commission XI overseeing finance and banking.

Due to the potentially damaging health impacts of carbonated sweet drinks, Brodjonegoro said that the consumption of the drinks should then be imposed using a levy scheme as an instrument.

"Philosophically speaking, imposing a levy on sweetened, carbonated drinks is in line with Law No. 39/2007 on levies," Brodjonegoro said.

Brodjonegoro added that imposing a levy on carbonated drinks to control excessive consumption was common practice in at least 79 countries, so Indonesia should follow suit.

"Even the US, which is the main producer of carbonated drinks, applies a levy on the product," he said.

Another reason considered by the government to impose the levy was the fact that the market share of carbonated sweet drinks in the soft drink industry was still relatively small but yet managed to post a significant amount of sales, according to Brodjonegoro.

Based on data from the Association of Soft Drink Manufacturers, sweetened, carbonated drinks accounted for only 3.8 per cent of the country's beverage market in 2011, far below bottled water with an 84 per cent share. Regardless of the small market share, sweetened, carbonated drink sales in that year reached a total of 10 trillion rupiah (US$1.03 billion), while bottled water reached 18 trillion rupiah.

"This data shows that there's still a lot of room for the growth of sweetened, carbonated drink consumption in the future and this also hints at the large potential for a levy to be collected," Brodjonegoro said.

According to Brodjonegoro, the government was currently analysing five levy schemes, ranging between 1,000 rupiah per litre to 5,000 rupiah per litre, on sweetened, carbonated drinks, the consumption of which was estimated to be around 790 million litres in 2012.

Based on the consumption rate and the schemes, Brodjonegoro said that the government could collect at least 790 billion rupiah to 3.95 trillion rupiah from the levy each year.

One of the commission’s deputy chairmen, Andi Timo Pangerang from the Democratic Party, said that legislators agreed with the government's idea to impose a levy on the drinks but added that further assessments and deliberations were required to ensure the policy would not heavily burden both consumers and industrial players.

If the proposal is approved, the drinks will become the country's third targeted levy, after tobacco and alcoholic drinks.

Indonesian Food and Beverage Association chairman Adhie S. Lukman said that industrial players objected to the idea and urged the government to annul it.

"Unlike tobacco and alcohol, carbonated drinks do not pose a severe threat to health," Lukman said.

"The government should have attempted to provide more incentives to push the industry to grow so that more taxes can be collected. Therefore, we officially reject this levy proposal on carbonated drinks," he added.

US$1 = 9,645 Indonesian rupiah


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