End To Luxury Tax On Golf Clubs

Golf clubs and horse saddles are set for tax breaks in Indonesia as the government revises the definition of luxury goods to boost consumer spending.

Other items previously classed as luxuries, including branded bags and fishing rods as well as more everyday items such as microwaves and washing machines, will also be exempt from a luxury sales tax starting next week, Finance Minister Bambang Brodjonegoro told reporters in Jakarta on Thursday.

The measures are aimed at boosting the household spending that makes up more than half of Southeast Asia’s largest economy. President Joko Widodo has pledged to spur growth from its slowest in five years and reduce inequality, with policy makers having announced plans to halve some micro lending rates, loosen loan rules for mortgages and cut corporate tax.

“The downgrade of still typically elitist items such as riding saddles and golf clubs might be deemed premature,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “Overall this move alone is not going to present the government with a hole in one in their quest to support consumption growth.”

The economy expanded 4.71 percent in the first quarter, the least since 2009. A government growth target of 5.7 percent for this year might be difficult to achieve, Brodjonegoro said this week.

The change in luxury tax could end up costing the government up to 900 billion rupiah in lost revenue, said Sigit Priadi Pramudito, the finance ministry’s tax director general. Luxury goods are taxed between 10 percent and 200 percent, with saddles at 40 percent and golf clubs at 50 percent.

The government wants to lift tax revenue by about 30 percent this year, yet as of May it had achieved 29 percent of its full-year target, according to the finance ministry.

The government will also expand tax allowances for companies in priority industries in some provinces, especially outside Java, and for companies making large investments, Brodjonegoro said.

Policy makers are over-emphasizing supply-side measures as domestic demand slows, and need to be more realistic about setting targets instead of making policies that are not well prepared and jeopardize credibility, said Eric Sugandi, an economist at Standard Chartered Plc. in Jakarta.

“If the government only provides tax incentives for the rich, this will only have limited impact on the aggregate demand,” said Sugandi. “The government should do a combo strategy: supply-side incentives and demand-side stimulus.”