Indonesia is already dependent on spending by low and middle-income families for economic growth, and once again the government turns to them for help to counter a seemingly imminent economic downturn.

President Joko Widodo’s administration is set to exempt electronics, home appliances, and furniture from sales tax on luxurious goods, starting this month. We agree those items should no longer be treated as luxurious goods, and so should not be subjected to luxury tax of 10 percent to 50 percent. The outdated tax was made when most Indonesians couldn’t afford to buy such goods. But now, we can find these items in most Indonesians’ homes.

That’s why we support the government’s move to remove this archaic luxury tax, especially when it can drive down the prices of these goods and in turn persuade people to buy them.

More spending on these items should definitely benefit companies and workers in the sectors, possibly spurring salary increases and bonuses, as well as increase employment. The combined impact will be an pick-up in economic activities that can counter the slowdown. It benefits all of us.

That’s what we hope. But before becoming too optimistic, we must first question whether the removal of the tax can be translated into meaningful price decreases of these products. If not, then the initiative is useless because there would be no increase in consumer spending.

For this scenario to work, producers should play fair and not take advantage of the situation by reducing the price to a level equivalent to the tax rate removal. While such a move on tax exemption should be welcomed, it’s just a small and short-term step. Indonesia must not depend on spending by its people every time it is facing the threat of a downturn. Boosting investment and productivity must be the way going forward.

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Source: The Jakarta Globe