The Ministry of Finance is studying a plan to impose higher import tariffs on 900 commodities to narrow the trade deficit, after initially proposing a list of 500 earlier this month.
A detailed list of the commodities, compiled by the ministries of finance, industry and trade, is expected to be released in September.
Finance Minister Sri Mulyani Indrawati said the higher tariffs are meant for goods that can be produced locally.
She said that when it comes to setting higher import tariffs, the government would take into consideration rules and limitations set by the World Trade Organization, to avoid a backlash from trading partners.
"We know this may lead to international disputes, even though some developed countries have also taken steps to raise their tariffs. But we will try to handle the [possible] pressure without damaging our growth," Sri Mulyani told reporters in Jakarta on Monday (27/08).
The government is currently reviewing the list of commodities that can be produced locally, as it wants to impose higher tariffs to discourage imports to reduce a widening current-account deficit. Indonesia currently imposes between 2.5 percent and 10 percent import tax.
Indonesia posted a 3 percent current-account deficit in the second quarter, while the trade deficit surged to a five-year high of $2.03 billion. A current-account deficit of less than 3 percent of gross domestic product is considered sustainable for the economy.
"The most important thing is that it does not affect investment or exports … so the impact will be small, or even positive for people," the minister said.
Benny Soetrisno, chairman of the Association of Indonesian Exporters (GPEI), said the government must be careful when raising tariffs on imports because it can lead to price increases and higher inflation as importers pass the additional costs on to consumers.
Higher prices of imported raw materials will also have a negative impact on domestic industries.
Benny said commodities likely to be included in the list are food products, such as rice, sugar, salt, animal products and packaged goods.
The government also plans to restrict imports of oil and gas, gas canisters used for subsidized gas distribution, cement, iron and steel, plastic raw materials, alcoholic beverages and cellular phones.
Shinta Widjaja Kamdani, deputy chairman of the Indonesian Chamber of Commerce of Industry (Kadin), echoed the warning that higher tariffs could negatively affect the country's growing manufacturing industry.
"Don't let this be counterproductive to the government's desire to boost high-value-added exports," Shinta said.