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Industry players and analysts on Tuesday welcomed the government’s decision to scrap a luxury tax on alcoholic beverages from April 1, but they doubted it would bring down the sales price. Currently, imbibers pay as much as 500 percent in taxes for their drinks.

On Monday, Finance Minister Sri Mulyani Indrawati said the government would start excluding alcoholic beverages from the luxury goods sales tax (PPnBM), to comply with a revised law on value-added and luxury taxes approved by the House of Representatives in September 2009. She was speaking at a customs office ceremony at which illegal liquor was destroyed.

“We will adjust the relevant tariff accordingly [through a ministerial regulation],” she said.

Ipung Nimpuno, a representative of the Indonesian Malt Beverages Association, said local brewers have not yet received details of the regulation. “But for us domestic beer producers, the impact would not be significant. The impact would be more significant for imported liquor,” Ipung said.

Mulyani said she hoped that once the luxury tax was removed, the price of drinks at bars and restaurants would fall, and that the distribution of illegal liquor would decrease as well, “which in turn will ensure the state’s income from duties and excise.”

Jimmy Gani, president director of PT Sarinah, the nation’s sole liquor importer, welcomed the tax exemption but said he could not guarantee a significant reduction in the price of a drink.

“Depending on the beverage class, the tax exemption will affect the price quite a lot. However, I heard that there are plans to increase import duties, which in turn will make the tax exemption not as significant.”

The government currently levies the luxury goods tax of 40 percent to 150 percent on alcohol depending on its strength. The current import duty for alcohol can be as high as 150 percent of the initial bottle price levied on importers. With several additional smaller taxes, it often costs as much as 500 percent more than its wholesale price by the time it hits the shelves and coolers.

Teguh Yudo Wicaksono from the Center for Strategic and International Studies in Jakarta agreed.

“With the tax exemption, low-priced, standardized liquor such as beer could compete in price with nonstandardized liquors, namely traditional alcoholic beverages whose quality cannot be guaranteed. This means consumers will have a safer choice to consume liquor,” Teguh said.

“However, I do not see that there will be a drastic price cut. It will depend on each liquor, as each kind has a market niche. I also don’t see that there will be a higher number of consumers for these beverages, because liquor is for a very limited market. It’s not like people who like cola will change to beer,” he said.