Jakarta. A steep increase in Indonesia's import tariffs on wine and spirits could more than double prices that were sky-high already, denting demand and raising the risk of smuggling, drinks industry executives say.
Under new tariffs that came into effect on July 23, importers have to pay 90 percent on the value of wine and 150 percent on spirits. Importers previously paid a fixed amount per liter.
The new ruling is the latest blow to a $300 million industry already reeling from an April ban on alcohol sales at minimarts. Two Islamic parties have also proposed legislation to ban consumption of alcohol in the country with the world's largest Muslim population.
"It's quite a shock to the industry," Dendy Borman, a board member at the International Spirit and Wine Association, told Reuters in a phone interview.
Foreign companies that sell wine and spirits in Indonesia include Diageo, Pernod Ricard, Remy Cointreau and Bacardi & Co.
Prices for wine and spirits in Indonesia had already surged by 140.5 percent and 154.4 percent, respectively, from 2009 to 2014, partly due to the weakening rupiah, according to market research firm Euromonitor International.
A 750-ml bottle of Absolut vodka imported before the tariff hike was selling at Jakarta supermarkets last week for at least 700,000 rupiah ($51.71) compared with about S$70 ($50.54) in Singapore and $18 in Chicago.
Retail prices for imported wine and spirits will now rise further, in a range from 15 percent to more than 100 percent, the association's Borman said.
"Such high prices for imported brands might give incentive for some actors to fill in the gap by producing fake liquor at very cheap prices," he said.
Critics say that if the increase in tariffs on alcoholic drinks and a raft of other products was designed to protect the local industry, it makes little sense because Indonesian-made goods cannot directly compete with the higher-quality imports.
"Addressing economic decline by limiting imports is self-destructive and will be detrimental for the future as exports depend on imports," said Jakob Friis Sorensen, former chairman of the European Business Chamber of Commerce in Indonesia. "Right now what Indonesia needs are clear and simple rules around trade, not further restrictions."
Coordinating Minister of Economics Sofyan Djalil said the cost increases for alcohol would not be as much as the new tariffs suggested because the hike was accompanied by the removal of quotas.
"We believe that excessive consumption of alcohol is not good for the country, for the society," Sofyan told Reuters on Friday. "But because we remove the quota, the rent that was captured by a quota holder is simply not there anymore."
Still, businesses will have no choice but to eventually pass on the increased costs to consumers, said Ramon Meijer, general manager at the Lan Na Thai bar and restaurant in Jakarta, where wine and spirits make up around 40 percent of monthly sales.
"For us the costs are too difficult to bear," Meijer said.