Thu, 29 Jan 2009
Businesses Slam Government Flip-Flops Over Stimulus

by Muhamad Al Azhari & Dion Bisara

The Indonesian Employers Association, or Apindo, is questioning the government’s seriousness about giving a “fiscal stimulus” package to the private sector after it proposed to legislators on Tuesday that all additional state spending would be packaged into a single tranche worth Rp 71.3 trillion ($6.27 billion).

“Why do they keep changing the figure and making it sound complicated?” Djimanto, secretary general of Apindo, told the Jakarta Globe late Tuesday. “Does the government really intend to give out the package or not? I think the government should have one spokesperson who can say succinctly what the definition of stimulus package is.”

During a hearing at the House of Representatives’ Commission XI, which oversees the national budget, Minister of Finance Sri Mulyani Indrawati said the latest figure for the stimulus package was Rp 71.3 trillion, equivalent to 1.4 percent of the country’s projected GDP this year.

But that number is just one of many put forth by government officials in recent months, with estimates ranging from Rp 12.3 trillion to over Rp 50 trillion.

Late last year, Sri Mulyani said the government had allocated Rp 12.5 trillion in the 2009 national budget for the stimulus package, mostly to cover tax subsidies for the private sector.

However, on Jan. 4, President Susilo Bambang Yudhoyono announced that Rp 38 trillion left over from the 2008 budget could be added to the package, swelling it to around Rp 50 trillion.

Then on Jan. 14, the head of fiscal policy at the finance ministry said the overall package had been reduced to Rp 27.7 trillion.

On Tuesday, Sri Mulyani told the DPR that the stimulus package would be divided into three main categories: income tax breaks, business tax credits and customs exemptions, and spending on community development, infrastructure projects and energy subsidies.

She said the stimulus would include Rp 43 trillion to cover income tax reductions set to take effect this year, including raising the minimum taxable income threshold to Rp 15.8 million a year, reducing the income tax rate to 30 percent for taxpayers earning Rp 500 million or more a year, and cutting the corporate income tax rate to 28 percent.

“A stimulus can also include funds the government was previously supposed to collect, but no longer will,” Sri Mulyani said on Tuesday after the hearing. “The Rp 43 trillion in taxes was supposed to go into government coffers, but now it will not.”

The second branch of the stimulus involves additional business tax credits. Oil and gas explorers and cooking oil producers would be exempted from paying Rp 3.5 trillion in value-added-taxes. An additional Rp 2.5 trillion would take the form of import duty exemptions for raw materials and capital goods used in a number of sectors. The minister has not said which sectors would be eligible.

Firms that have been “affected by the global economic crisis” would also be exempted from paying income taxes for their employees. The exemptions would cost the government an estimated Rp 6.5 trillion in revenue.

Apindo’s Djimanto, however, viewed the aid to businesses with skepticism. “For the tax relief scheme, the government put forward difficult criteria for firms to qualify for the scheme. It’s very confusing.

“They haven’t yet provided clear information about the stimulus package yet - just general spending priorities.”

The third branch of stimulus is dedicated to subsidies and infrastructure spending. Rp 10.2 trillion in additional funding is to be spent on infrastructure projects, and the National Program for People’s Empowerment is to receive Rp 600 billion.

Further, Rp 2.8 trillion is to be allocated for diesel subsidies, and Rp 1.4 trillion to reduce electricity prices. Neither of these items, however, are new. The fuel subsidy reflects this month’s diesel price cut, and the electricity cost reduction represents PT Perusahaan Listrik Negara’s Jan. 1 decision to lower its peak-hour usage penalty.



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