With its vibrant economy and diverse market, Indonesia has become an attractive destination for businesses looking to import goods.
However, navigating the import duties and regulations can be complex for new and experienced importers.
This article will provide an essential guide to understanding import duties and taxes in Indonesia, covering Indonesian tariff classification, customs duties, the types of goods subject to customs, how to calculate these duties and best practices for successful import operations.
Import Duties and Taxes in Indonesia
Like many countries, Indonesia imposes customs duties on various goods to protect domestic industries, generate revenue, and regulate trade. These customs duties are administered and regulated by the Directorate General of Customs and Excise (DGC&E) under the Ministry of Finance.
There are several types of customs duties in Indonesia, each with its specific purpose:
A. Import Duty (Bea Masuk)
This is the primary Duty imposed on imported goods. It is calculated as a percentage of the goods’ customs value, including the cost of the goods, insurance, and freight (CIF value). The rates can vary depending on the type of goods and the origin country. Import duty is payable at 0% to 150% on the customs value of imported goods.
B. Value Added Tax (VAT or PPN)
Indonesia imposes a value-added tax on imported goods at a standard rate of 11% of the CIF value. Some essential goods and services may have lower or zero-rated VAT.
C. Luxury Goods Sales Tax (PPnBM)
This tax is applied to certain luxury goods and can range from 10% to 95% of the CIF value. The rates depend on the specific item being imported.
Indonesia Import Tariff Classification
Indonesia’s Import Tariff Classification is a crucial framework for regulating international trade. It encompasses various components, including:
1. Harmonised Commodity Description and Coding System (H.S. Code)
The H.S. Code is the foundation of Indonesia’s import tariff classification system. It harmonises and categorises products for international trade, allowing for the standardised classification of goods and facilitating the movement of commodities across borders.
2. Most Favoured Nation (MFN) Tariff
The MFN Tariff represents Indonesia’s baseline import tariff rates, which are applied to all countries without preferential trade agreements. It ensures equitable treatment for all trading partners, preventing discrimination in tariff rates.
3. Preferential Tariff
Indonesia has entered into several preferential trade agreements with various countries and regions, each having its Preferential Tariff rates. These agreements grant specific trade benefits to partners, such as reduced or eliminated tariffs, to promote economic cooperation and strengthen diplomatic ties.
Some of the critical preferential trade agreements include:
- ASEAN Trade in Goods Agreement (ATIGA): Fosters trade integration within the ASEAN region, promoting the free flow of goods and services among member states.
- ASEAN–China FTA (ACFTA): Enhances trade relations and economic cooperation between ASEAN and China, reducing or eliminating tariffs on many products.
- ASEAN-Korea FTA (AKFTA): Encourages trade between ASEAN countries and South Korea through tariff concessions.
- ASEAN-India FTA (AIFTA): Promotes trade and economic ties between ASEAN and India, providing preferential tariff rates for various goods.
- ASEAN-Australian and New Zealand FTA (AANZFTA): Supports trade between ASEAN member countries and Australia and New Zealand, reducing or eliminating tariffs on a wide range of products.
- Indonesia–Japan Economic Partnership Agreement (IJEPA): Strengthens trade relations between Indonesia and Japan, offering preferential tariff rates for specified goods.
- Indonesia – Pakistan Preferential Trade Agreement (I.P.): Enhances economic cooperation between Indonesia and Pakistan, reducing tariffs on select products.
4. Pre-Entry Classification (Classification Ruling)
Pre-Entry Classification refers to obtaining a classification ruling from the customs authority before importing specific goods. It ensures that importers correctly classify their products under the appropriate H.S. Code, which is essential for determining applicable tariffs and complying with regulations.
Goods that Are Subject to Indonesian Customs
Not all imported goods are subject to the same import duties. Some items may be eligible for exemptions, reduced rates, or preferential treatment under various trade agreements.
It’s essential to understand the product categories that are often subject to customs regulations:
1. Restricted and Prohibited Goods
- Narcotic drugs and psychotropic substances
- Pornographic and obscene material
- Counterfeit and pirated goods and goods infringing any of the legally enforceable intellectual property rights.
- Aero models (such as remote-controlled toy helicopters) operate on high radio bandwidths because of their possible interference with the communication networks of security agencies.
- Indonesia coins, which the Antique and Art Treasure Act of 1972 covers.
- Maps and literature where Indonesia’s external boundaries have been shown incorrectly because of the Government of Indonesia.
- Chemicals mentioned in Schedule 1 to the Chemical Weapons Convention of U.N. 1993.
- Wildlife products include human skeletons, specified sea shells, beef, grease, fat/oil of animal origin, exotic birds except for a few specified ones, wild animals, their parts and products, and defined live birds and animals.
- Firearms and ammunition
- Live birds and animals, including pets
- Plants and their produce, e.g. fruits, seeds
- Endangered species of plants and animals, whether live or dead.
- Any goods for commercial purpose: for profit, gain or commercial usage.
- Radio transmitters are not approved for regular usage.
- Gold and Silver, other than ornaments (for import only)
- Currency over prescribed limits
- Telephone and telephony equipment of restricted frequencies
- Medicines and drugs
- Certain Animals – Camel, Horses, Cattle
- Semi-processed hides and skins
- Silkworms, silkworm seeds and cocoons
- Family Planning Devices (NOC from Ministry of Health Required)
- Vintage products, replicas of antiques or weapons
- Sand and soil
- Whole human blood plasma and certain products derived from human blood
- Sandalwood (except handicraft products & oil)
2. Dutiable Goods
Certain items, such as books, laptops, and electronic devices, can be brought in without incurring import duties. However, for different categories of goods like luxury cars (subject to a 150%-200% tax), alcoholic beverages (with tariffs ranging from 5% to 20%), and branded shoes (levied at 40%), additional charges may apply in addition to the CIF.
3. Exempt or Reduced Rate Goods
In the realm of taxation and import control, a certain category of goods that enjoy special status, either being exempt from certain taxes or subject to reduced rates. This category includes:
- Ethyl Alcohol (Ethanol): This versatile chemical is used in many things. It gets special tax treatment because it’s essential for the economy.
- Alcoholic Drinks: Drinks with alcohol like wine, beer, and spirits have their taxes. These taxes are designed to encourage responsible drinking and generate revenue.
- Tobacco Products: Tobacco, like cigarettes and cigars, has special taxes, too. These taxes aim to reduce tobacco use and raise money for public health.
How to Calculate Indonesia Customs Duties
To calculate the import duties on your goods, follow these steps:
1. Determine the Harmonized System (H.S.) Code
Each product is classified under a specific H.S. code, which helps determine the applicable import duties. You can find the H.S. code for your product by referring to the Indonesia Customs Tariff.
2. Calculate Import Duty
To determine the overall import tax, you should begin by converting the aggregate value of the goods into Indonesian Rupiah. This conversion can be accomplished by utilising the subsequent formula:
TOTAL VALUE IN IDR = (Total Value in USD + Total CIF*) multiplied by the IDR exchange rate
*CIF = (Freight on Board + Insurance + Freight Cost) multiplied by the exchange rate
Now, let’s break down the calculation of Import Duty and Import Taxes:
A. Import Duty:
Calculate the Import Duty as follows:
Import Duty = Customs Duty Tariff x CIF Value
B. Value Added Tax (VAT):
VAT is calculated at a rate of 10% on the CIF Value plus Import Duty:
VAT = 10% x [CIF Value + Import Duty]
C. Article 22 Income Tax:
The Article 22 Income Tax rate varies depending on the type of goods, typically falling into 2.5%, 7.5%, or 10% categories. Calculate it as:
Article 22 Income Tax = Tariff x [CIF Value + Import Duty]
D. Luxury Goods Sales Tax (LGST):
LGST is applicable only to certain goods classified as luxury items. Compute it as:
Luxury Goods Sales Tax = Tariff x [CIF Value + Import Duty]
Excise is imposed on excisable goods, and the calculation is based on the excise value per unit. Ensure that it is applied only to goods that qualify for excise tax.
To ensure a smooth and compliant import process in Indonesia, consider these best practices:
- Understand the Regulations: Familiarise yourself with Indonesia’s customs and import regulations. Consulting with local experts or customs brokers can be highly beneficial.
- Proper Documentation: Ensure all required documentation, including invoices, packing lists, and certificates of origin, are accurate and complete.
- Customs Brokers: Consider hiring a reputable customs broker to navigate complex customs procedures and stay updated on changing regulations.
- Tariff Classification: Correctly classify your products under the H.S. code to determine the accurate import duties.
- Utilise Trade Agreements: If applicable, leverage any preferential trade agreements that may reduce or exempt your import duties.
- Stay Informed: Stay updated with changes in customs regulations and import duty rates in Indonesia, as these can evolve.
How Luwjistik Helps
Luwjistik offers a comprehensive logistics platform solution designed to enhance operational efficiency and foster collaboration among businesses and a network of service providers. Our platform streamlines customs tariff calculations, including duties and taxes, ensuring a seamless clearance process.
Here’s how Luwjistik can benefit you:
- Marketplace Access
- Gain access to a network of trusted partners, which includes customs brokers in 22 countries. Choose the customs brokerage services that best suit your requirements. These brokers assist you in navigating customs tariffs, and you can leverage their expertise for tariff classifications and trade regulations.
- L-Freight Tool
- Simplify customs processes through document submission and tracking. This tool ensures precise and transparent customs declarations, minimising the risk of tariff errors. You can also monitor your shipments in real-time, including their customs clearance status.
- Node Calculator
- This comprehensive tool empowers businesses to navigate customs tariffs and enhance supply chain operations. It breaks down costs at each stage of the supply chain, providing transparency and enabling well-informed decision-making.