Indonesia: APEBI says adoption of VAT may kill businesses

Jakarta / ID. (01.19. / tjp) The Indonesian Bakery Association (APEBI) demanded the government scrap ten percent value-added tax (VAT) on imported wheat to help revive the country´s bakery and pastry businesses as global economic slump undermined people´s purchasing power. «We want the government to participate in helping out the bakery sector, especially the small-scale ones», APEBI chairman Chris Hardijaya said.

The government has slapped back VAT on imported wheat as of January 01 after waiving it in the middle of last year in response to skyrocketing commodity prices. According to Hardijaya, the VAT had now caused flour prices to jump by ten percent as compared to last December. Currently, flour prices vary from around 400’000 IDR to 600’000 IDR per 100 kilograms (100’000 IDR = 06,84 EUR).

«Our concern is the small-scale bakeries cannot keep up with the rising prices», said Bogasari flour company director Franciscus Welirang to «The Jakarta Post». According to the association, there are around 120’000 bakery businesses throughout Indonesia, 55 percent of which are micro-scale firms making less than 25 million IDR (1’710 EUR) sales per month, 30 percent are small firms recording less than 200 million IDR, ten percent middle-size bakeries making less than 4,0 billion IDR a month, and the remaining five percent are large bakeries with over 4,0 billion IDR (273’600 EUR) in sales per month.

«Each year, there is usually some ten percent rise on the number of bakeries, which include those making traditional snacks», said Hardijaya. Flour prices rose by 100 percent last year, while small-scale firms could only afford to raise their prices by 20 to 25 percent. «Now that the prices are going down, these bakeries are supposed to expand their business until the VAT burden their production cost again», said Welirang. He suggested the government not to impose the VAT at a time when the prices and the rupiah exchange were still fluctuating.

Indonesia imports wheat from countries such as Australia, and ready-made flour mostly from Bogasari wheat processing plant in Singapore. From October 2007 to October 2008, Indonesia imported 4,3 million tons of flour.