Indonesia Slashes Import Duties on Plastic Raw Materials to Shield Economy from Inflationary Pressures

JAKARTA – In a strategic move to safeguard the national economy against volatile global commodity prices and rising domestic inflation, the Indonesian government has officially announced a temporary abolition of import duties for essential plastic raw materials and liquefied petroleum gas (LPG). The policy, which sets the import duty at 0% for a duration of six months, is designed to provide a "breathing room" for the domestic manufacturing sector, particularly the food and beverage industry, which relies heavily on plastic packaging.

Coordinating Minister for Economic Affairs, Airlangga Hartarto, confirmed that the government is currently awaiting the finalization of the Ministry of Finance Regulation (PMK) to formalize the decision. The move comes as a direct response to geopolitical instabilities that have disrupted the global supply chain for naphtha—a critical feedstock for the petrochemical industry—and sent the costs of plastic derivatives soaring.

I. Main Facts: A Strategic Zero-Percent Tariff Policy

The core of the government’s intervention lies in the total removal of import duties for several key petrochemical products. For the next six months, the following materials will be subject to a 0% import tariff:

• Polypropylene (PP): Widely used in packaging, textiles, and automotive parts.
• Polyethylene (PE): The most common plastic in the world, essential for bags, films, and containers.
• Linear Low-Density Polyethylene (LLDPE): Primarily used for stretch film and packaging applications.
• High-Density Polyethylene (HDPE): Used for more rigid applications like milk jugs, detergent bottles, and piping.
• Liquefied Petroleum Gas (LPG): Now recognized as a viable industrial substitute for naphtha in the production of plastic pellets.

Previously, LPG imports were subject to a 5% duty. By eliminating this, the government aims to encourage industrial players to switch to LPG as an alternative feedstock, thereby reducing dependency on increasingly expensive and scarce naphtha.

Minister Airlangga Hartarto emphasized that the decision was finalized during recent cabinet meetings. "For polypropylene, polyethylene, and others, we have granted a 0% rate for six months. We are simply waiting for the Minister of Finance to sign the regulation. We reminded the cabinet of this recently, and we hope it will be signed within this week," Airlangga stated during the P3DN (Increased Use of Domestic Products) Summit held at Grha Pertamina, Jakarta.

II. Chronology of the Policy Development

The path toward this significant trade intervention began in late April 2026, as the government monitored a sharp spike in global plastic prices, which had risen by 50% to 100% in certain markets.

• April 28, 2026: During a high-level press conference at his office in Central Jakarta, Minister Airlangga first signaled the government’s intent to intervene. He noted that the geopolitical climate had made it increasingly difficult for Indonesian industries to secure naphtha, the traditional base for plastic production.
• Early May 2026: The official decision was reached to implement the 0% duty policy. The government identified that without intervention, the rising cost of packaging would inevitably be passed on to consumers through higher food and beverage prices.
• July 22, 2026: Speaking at the P3DN Summit, Airlangga provided an update on the administrative progress. While the LPG duty reduction (from 5% to 0%) had already been signed by the Minister of Finance, the specific regulation for plastic raw materials (PP, PE, LLDPE, HDPE) was still in the final stages of the signing process.
• Projected Implementation: The policy is slated to run for an initial period of six months, with a review scheduled at the end of the term to determine if an extension is necessary based on the global economic climate and domestic inflation rates.

III. Supporting Data: The Economic Rationale

The government’s decision is backed by stark data regarding the impact of packaging on the Consumer Price Index (CPI). In Indonesia, food and beverage products represent a significant portion of the average household’s expenditure. Because nearly all processed food products require plastic packaging, a 50-100% increase in raw plastic costs creates a "multiplier effect" on food inflation.

1. The Naphtha-LPG Substitution
Naphtha is the primary feedstock for steam crackers that produce olefins (the building blocks of plastic). However, due to supply chain disruptions in Europe and the Middle East, naphtha prices have become highly volatile. LPG serves as a secondary feedstock. By reducing the LPG import duty from 5% to 0%, the government is effectively lowering the production floor price for domestic petrochemical plants, such as those operated by Chandra Asri or Lotte Chemical Indonesia.

2. International Precedent
Indonesia is not acting in isolation. Minister Airlangga noted that other major emerging economies, most notably India, have adopted similar measures. India, a massive consumer of plastics for its agricultural and retail sectors, reduced import duties on plastic raw materials earlier in the year to protect its manufacturing competitiveness. By aligning with international trends, Indonesia ensures its domestic industries remain competitive and are not disadvantaged by cheaper imported finished goods.

3. Inflation Control
The primary objective of this fiscal policy is the suppression of "cost-push" inflation. "If this policy runs as intended, we can push inflation down," Airlangga explained. "Rising food prices are often linked to packaging costs. By zeroing out these duties, we are removing a significant cost burden from the entire supply chain."

IV. Official Responses and Institutional Roles

The implementation of this policy involves a coordinated effort between several key ministries. While the Coordinating Ministry for Economic Affairs sets the strategic direction, the technical execution falls to the Ministry of Finance and the Ministry of Industry.

Minister Airlangga Hartarto’s Perspective:
Airlangga has been the primary advocate for this move, framing it as a proactive shield against global "geopolitical storms." He emphasized that the government must be agile. "We will see what the situation is after six months. This is a responsive policy. We are following the lead of countries like India to ensure that packaging costs do not drive up the price of food and beverages for our citizens."

The Role of the Ministry of Finance:
The Ministry of Finance, led by Purbaya Yudhi Sadewa (as cited in the current administrative context), is tasked with the legal formalization of the duty waiver. The signing of the PMK is the final hurdle. Once signed, the Customs and Excise Directorate General will immediately apply the 0% rate at all ports of entry.

The Role of the Ministry of Industry:
The Ministry of Industry will be responsible for monitoring the impact of the policy on domestic production. They are tasked with ensuring that the benefits of the 0% duty are actually passed down to the food and beverage manufacturers and, ultimately, to the consumers, rather than being absorbed as higher profit margins by petrochemical middlemen.

V. Implications for the Industry and the Broader Economy

The implications of this policy are far-reaching, touching on industrial health, consumer welfare, and national economic stability.

1. Relief for the Food and Beverage (F&B) Sector
The F&B sector is one of the largest contributors to Indonesia’s non-oil and gas GDP. For companies ranging from multinational giants to local SMEs producing snack foods, bottled water, and staples, packaging accounts for a substantial portion of total production costs. The duty waiver prevents a "price shock" that could have dampened consumer spending.

2. Boosting Petrochemical Utilization
By making LPG a more attractive feedstock, the government is helping domestic petrochemical refineries maintain high utilization rates. This is crucial for industrial stability, as it prevents layoffs and ensures that the country maintains its domestic manufacturing capacity rather than becoming entirely dependent on imported finished plastics.

3. Short-term Fiscal Loss vs. Long-term Stability
While the removal of a 5% duty on LPG and various duties on plastic resins will result in a temporary decrease in state revenue from customs, the government views this as a necessary trade-off. The "loss" in tax revenue is expected to be offset by the "gain" in economic stability and the avoidance of expensive social subsidies that might be required if food inflation were to spiral out of control.

4. A Signal to Investors
This policy sends a strong signal to the global market that the Indonesian government is prepared to use unconventional fiscal tools to protect its industrial base. It demonstrates a commitment to "hilirisasi" (downstreaming) by ensuring that the mid-stream processing industries have the raw materials they need to stay viable during global crises.

Conclusion

The temporary elimination of import duties on plastic raw materials and LPG is a calculated gamble by the Indonesian government to decouple domestic prices from global geopolitical volatility. By targeting the very beginning of the supply chain—the raw pellets and feedstocks—the administration aims to stifle inflation before it reaches the dinner tables of millions of Indonesians.

As the industry awaits the final signature from the Ministry of Finance, the focus will soon shift to the six-month review. The success of this policy will be measured not just by the stability of plastic prices, but by the resilience of the Indonesian consumer in the face of an increasingly unpredictable global economy. For now, the 0% duty stands as a vital bridge, intended to carry the nation’s manufacturing sector through a period of intense global pressure.