Indonesia’s 20 per cent smartphone tax likely to backfire

This week news emerged that the Indonesian government is planning to levy a 20 per cent luxury goods sales tax on all smartphones made outside the country. It’s an old fashioned piece of protectionism which could hit mobile phone makers in the region pretty hard and is unlikely to have the desired outcome.

As I mentioned in my story for The Register, Indonesia is a growing smartphone market with massive potential – as the world’s fourth most populous nation.

Firms that might be particularly dismayed by the tax include BlackBerry, which counts Indonesia as one of its few remaining strongholds, and Apple, which only recently restarted iPhone 4 production to target budget conscious locals.

If the rumours are true it can be seen less as an attempt to spur local handset makers, of which there are few, and more as a means to persuade more global manufacturers to locate facilities in the country.

Foxconn has already stolen a march on its rivals here by announcing a $1bn investment in facilities there.

Canalys analyst Jessica Kwee told me that, seeing as most domestic smartphone makers are focused on cheap, low-end handsets it’s unlikely that high-end users will be persuaded by the tax to buy local.

“What I think is more likely to happen is that the extremely wealthy would continue to buy their premium phones as is,” she said.

“Then other users will resort to the grey market to source their high-end phones – either via grey importers, by buying when they travel to nearby countries like Singapore or Malaysia, or by requesting from their friends etc. The latter would certainly not benefit the government.”

It’ll be interesting to see whether the government follows through with its plans. After all, at one stage it was mooting the tax only on handsets over Rp 5 million (£260), which I still reckon is the most likely outcome.