Domestic Industry Hit by Illegal Cellphones’ Circulation

· 3 minutes read

JAKARTA, KOMPAS — The rampant circulation of illegal cell phones in the country has not only eroded state revenue but also hit the domestic cell phone industry. As they are not subject to taxes, illegal cell phones are sold at lower prices, both offline and online, taking the market away from legal ones.

Indonesian Cell Phone Association (APSI) estimates that 9 million illegal cell phones are being circulated in the black market, amounting to 20 percent of the 45 million cell phones in the domestic market in 2018.

Abidin Fan, the president director of PT Sat Nusapersada that assembles Xiaomi cell phones, said the rampant circulation of illegal cell phones had led to revenue loss at his company. Xiaomi cell phone production at PT Sat Nusapersada had plummeted from 800,000 per month to just 200,000 per month.

Consequently, employment termination becomes inevitable. The company was forced to reduce its manpower from 6,000 to around 4,000. “This is because black market cell phones are flooding the markets everywhere,” Abidin said in Batam, Riau Islands, in late August.

Chandra Tansri, the director of operations at PT Bangga Teknologi Indonesia, which produces Advan cell phones, said the circulation of illegal cellphones had disrupted prices of legal cell phones. Sales of legal cell phones have eroded, including local brands such as Advan. “[Our] sales have gone down, that’s for sure,” Chandra said.

Unhealthy competition

Hansen Lie, the director PT Maju Express Indonesia as the license holder of Mito cell phone brand, said competition in the cell phone market had become unhealthy due to rampant circulation of illegal cell phones. Many cell phone industry players have made investments to build factories, recruit workers and establish networks for distribution and aftersales services.

Furthermore, Hansen said, his company was required to process licensing to the government when it planned to launch new products. The licensing takes six months. Meanwhile, smugglers can bring various types of new cell phones in a short time. “We have to pay taxes and take care of all licenses while smugglers can skip all of this,” he said.

APSI deputy chair Syaiful Hayat said the flooding of illegal cell phones had disrupted the domestic cell phone industry. “Since 2012, we have been forced to build the domestic industry. However, if the [illegal cell phone] problem is neglected, we, who have made investments, are left unprotected,” Syaiful said.

Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said illegal cell phone circulation had led to the state losing potential revenue from income tax (PPh) and value added tax (VAT). These two taxes amount to at least 12.5 percent of cell phones’ import value.

If there are 9 million illegal cell phones circulating in line with APSI’s estimation, the state loses a potential revenue of Rp 2.47 trillion per year, assuming the average price of cell phones is Rp 2.2 million.

From consumers’ perspective, illegal cell phone circulation harms consumers as they will not be eligible for aftersales services. Repairs, for instance, are available only at the cell phone shop.

Tuti, 45, who purchased a cell phone with only a distributor’s warranty, said she bought a phone from the black market as it was cheaper. However, she regrets her decision today as she finds it difficult to repair her broken cell phone. (NDU/BKY/IGA/ILO)

Editor:

naranasrullah

kompascetak center for indonesia taxation analysis pt sat nusapersada indonesian cell phone association pt bangga teknologi indonesia