As we enter 2024, the Law on State Revenue and Expenditure Budget (Anggaran Pendapatan dan Belanja Negara or “APBN”) has set an ambitious target for tax revenue, aiming to reach Rp246,07 trillion, as revealed by the Ministry of Finance, Sri Mulyani Indrawati. This marks a significant increase from the previous year’s tax revenue of Rp221,8 trillion. One of the key reasons behind this surge is the inclusion of excise taxes on packaged sweetened drinks (Cukai Minuman Bergula dalam Kemasan or “MBDK”), with a targeted revenue of Rp4,39 trillion for 2024. However, delays in the implementation of the MBDK excise tax have arisen, leaving concerns regarding Indonesia’s economic recovery and the costs of excessive MBDK consumption, including its impact on public health and obesity rates.
Since 2016, the adverse health effects of sweetened drinks have been under scrutiny, prompting discussions on reducing their consumption. Regulating the implementation of excise tax on MBDK is seen as a necessity to restrain the consumption of unhealthy products, with an impact on increased retail prices and subsequently generating substantial government revenue to be allocated in health and community welfare initiatives.
In the implementation process, governments must carefully select the most effective and appropriate type of excise tax on MBDK to ensure maximum health and economic benefits. Recommendations from the Ministry of National Development Planning and UNICEF Indonesia suggest excise tax on all drinks containing free sugar at rates high enough to induce changes in consumption patterns. However, this proposal bears significant implications for the food and beverage industry, given the high consumption rates of MBDK in Indonesia and its integral role in various major industries. Therefore, it is imperative for the government to formulate regulations meticulously to strike the right balance, ensuring that the excise tax does not overly burden the industry.
Regarding its impact on companies, the implementation of the MBDK excise tax is expected to sustain additional costs for producers of sweetened drinks, potentially affecting income levels. Companies may respond by adjusting selling prices or reducing packaging contents. Currently, this may seem as a negative impact towards these companies, but this change can be seen as an opportunity for companies to innovate their product formulation to cater to health-conscious consumers and diversify their product offerings and position themselves as providers of healthier beverage choices, thereby enhancing consumer trust and loyalty.
Most importantly, companies are required to have a comprehensive understanding of regulations, market dynamics, and consumer behavior. This can be done through open discussions with regulation authorities and customers regarding the reasons behind the introduction of excise tax and how it is crucial for maintaining and expanding market share. Needless to say, the effects of implementation may initially be temporary due to the high demand for sweet drinks among the Indonesian population. Nevertheless, entrepreneurs must remain adaptable and proactive in addressing emerging threats, understanding the regulatory landscape, and seizing new opportunities, to ensure long-term competitiveness and success in the face of regulatory changes and shifting consumer preferences.
If you, a prospective client, have further inquiries about the topic discussed above, Schinder Law Firm is one of many corporate law firms in Indonesia that has handled numerous similar matters, with many experienced and professional corporate and civil lawyers in its arsenal, making it one of the top consulting firms in Indonesia. Feel free to contact us at info@schinderlawfirm.com for further consultation.
Author: Dewi Susanti