The government will soon abolish value-added tax (VAT), luxury tax and import duties on production goods in free trade zones (FTZs) in the Riau Islands province in a bid to stimulate businesses.
The provincial administration and the customs and excise directorate general have finalized a draft regulation that will eliminate these taxes and duties in these areas, according to Riau Islands governor Ismeth Abdullah.
The draft regulation, he said, would henceforth be based on the 2007 law on FTZs, which stipulates that no VAT, luxury tax or import duties on production goods are applied in FTZs.
"We (the administration), along with the customs and excise directorate general, just finalized the idea (of the draft regulation) this (Thursday) morning," Ismeth told The Jakarta Post recently.
Customs and excise director general Anwar Suprijadi would submit it within one to two days to Finance Minster Sri Mulyani Indrawati and to President Susilo Bambang Yudhoyono for approval, he said.
He said the draft regulation, when enacted, would automatically annul the 2003 government regulation on the imposition of VAT and luxury tax on industrial estates in the bonded zone of Batam Island - the province's biggest island.
He also said the draft regulation would instead help the central government generate more income from corporate income tax as the elimination of VAT and duty would stimulate more trade.
"I understand the draft regulation may seem to result in lower revenue from VAT, luxury tax and import duties," Ismeth said.
"However, we could collect bigger revenues from income tax generated from higher frequency of business activities as a result of the tax reductions," he added.
According to Ismeth, income tax revenue collected from companies in Batam Island alone reached Rp 1.7 trillion (US$171 million) in 2006 and nearly Rp 2 trillion in 2007.
The draft regulation will also designate particular seaports on Batam, Bintan and Karimun Islands -- the province's FTZs - to channel export and import activities.
"We'll cooperate with customs officials to record and control goods entering and going out through the future designated ports," he said, adding that each of the three islands were expected to have two ports.
The Indonesian Chamber of Commerce and Industry (Kadin) chairman, M. S. Hidayat, told the Post he welcomed the draft regulation as it would encourage businesses in the area.