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New cattle tax shock for Indo importers

James Nason, 15/01/2016


The Australia-Indonesia live cattle trade has been shocked by the sudden imposition of a new 10 percent tax on cattle imports by the Indonesian Ministry of Finance.

Indonesian cattle importers say they were given no warning that the major new tax was coming.

They learned of it only when they received a ministerial decree in the mail yesterday, close to the same time that Jakarta was rocked by a series of explosions in a terrorist attack that killed seven people and wounded dozens more.

The letters said the ministerial decree was made on December 31 and advised that the new tax would take effect from January 8, 2016.

However, importers were not informed about the new tax until yesterday, one week after its official introduction.

The tax will effectively add at least another 10pc to the cost importers will face to buy Australian cattle.

It does not apply to imported breeding cattle or to imported boxed beef.

The implications of the tax are still being digested by the trade.

Importers have told Beef Central they are extremely concerned by the sudden impost, warning that it will add significant costs at a time when their businesses are already enduring a severe financial squeeze.

On one hand, the shortage of cattle in northern Australia means importers are now paying record prices to source feeder stock for their feedlots, up to 370c/kg according to various reports.

At the other end the Indonesian Government expects importers to sell finished cattle at low prices in order to keep the price of beef in wet markets at affordable levels for consumers.

The new tax is a direct contrast to the Indonesian Government’s stated aspirations of trying to reduce inflationary pressure on food prices including beef, by adding further costs to the supply chain.

It could also be viewed as a sign the one-year-old Widodo Government is mirroring previous Indonesian Governments by stepping up plans to achieve self-sufficiency in beef production, because the obvious and specific impact of the tax will be to make imported cattle more expensive.

Attempts by former Indonesian Governments to achieve self-sufficiency in beef production led to adverse outcomes for the country, with rushed time frames leading to excessive cuts to cattle imports and severe beef shortages that pushed beef prices to unaffordable heights for consumers.

The trade has had less than 24 hours to digest the news and is still trying to seek clarity from the Indonesian Government as to why the tax was introduced and why there was no advance warning or consultation.

Australian Livestock Exporters’ Association chief executive officer Alison Penfold was in touch with the Australian embassy in Jakarta yesterday trying to seek further information when the explosions in the Indonesian capital forced the embassy’s temporary closure.

She has since not been able to contact the embassy but said she has been advised that a ministerial decree has been released stating that “a 10pc VAT (Value-Added Tax) will be charged to live cattle imports except breeders”.

The new 10pc tax is one of three taxes now imposed by Indonesia on live cattle imports. It comes on top of an existing 2.5pc PPH tax and a 5pc import duty.

It was difficult to see how the new tax fitted with Indonesia’s aim to reduce inflationary pressure on consumer prices, she said.

“It has seemingly come from no where, there has been no consultation and no heads up,” Ms Penfold said.

“I certainly at this point don’t understand its implementation, given that we had meetings last year (with Indonesian Government representatives) around the annual permits which were about addressing inflationary pressures on prices to consumers.”

She said the industry was still less than 24 hours into trying to understand what the impacts would be, but noted that the new tax comes on top of already significant pressures for beef prices in Indonesia.

“It has come out of nowhere and it has taken everyone by surprise,” she said.

One respected cattle import industry source, who asked not to be identified, said the new tax could be potentially devastating for Indonesian cattle import businesses, while also placing upward pressure on the price of beef in Indonesia.

Importers would have no choice but to try to push up their cattle selling prices to absorb the additional cost, which could push the price of cattle up to around 50,000 Indonesian Rupiah per kilogram and the price of beef up to around 150,000 IR/kg he predicted.

He said the new tax without consultation appeared to be a political move against the imported cattle industry.

“You can’t help but think the Indonesian president and Government is out there trying to knock the Australian cattle industry on the head,” he said.

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