Industry Minister MS Hidayat said on Thursday that the government has agreed to offer investors further tax incentives to help achieve its ambitious target of attracting Rp 10,000 trillion ($1.1 trillion) in new investments by 2014.
Hidayat said the Investment Coordinating Board (BKPM) and the Finance Ministry shared his view about the necessity of providing such incentives.
â€śWeâ€™re facing a high target in attracting investment. Therefore, we need ammunition,â€ť he said.
A tax holiday is a temporary cut or elimination of tax.
Hidayat said the Ministry of Economic Coordination would hold a meeting between the relevant agencies and departments to discuss the matter and decide on the exact nature of the incentives to be offered, and whether the term â€śtax holidayâ€ť would be used.
Speculating on some possible outcomes from the meeting, Hidayat said, â€śIt [the tax holiday] may be given for five years at the maximum, but it depends on the sector.â€ť
On what sectors may benefit from the measure, Hidayat said the government will prioritize intensive industries that add value to the raw materials the country produces.
The government aims to draw as much as Rp 10,000 trillion of investment in the five years through 2014 from both foreign and domestic investors, Hidayat said. The government believes this investment is necessary to meet its annual growth target of 7 percent by 2014.
Speaking to the Jakarta Globe, BKPM chairman Gita Wirjawan said Finance Minister Sri Mulyani Indrawati was interested in the tax holiday proposal.
â€śWe [at BKPM] have done our part in registering the needs and aspirations of the investors and the finance minister has shown her interest in the matter. They donâ€™t seem to have shut the door on that [issue]. So we hope it could be actualized as soon as possible, as the final decision is in her hands,â€ť Gita said.
But he said the government must be careful in offering fiscal incentives to investors otherwise it may appear to be offering the country for sale with a â€ścheapâ€ť price tag.
â€śThis is why we have to focus on specific sectors that are the most promising and deserve to be given incentives,â€ť Gita said.
In February, the Finance Ministryâ€™s head of fiscal policy, Anggito Abimanyu, said the ministry was still studying a proposal for a tax holiday submitted by BKPM and the Industry Ministry.
But Anggito said the Finance Ministry was reluctant to back the measure, pointing out that the government has already given considerable fiscal incentives to companies, including reduced corporate taxes on income and land in special economic zones, as well as exemptions from the value-added and luxury-goods taxes.
Companies also enjoy non-fiscal incentives such as streamlined immigration procedures and easier access to land and business permits.
This year the government has given various tax incentives. It lowered corporate income tax from 28 percent to 25 percent and gave a 5 percent income-tax cut to listed companies if they offer more than 40 percent of their shares on the stock market. The state also offers tax exemptions for primary agriculture products and luxury goods.
In addition, the government set aside Rp 3 trillion ($324 million) for import-duty subsidies this year, an increase from last yearâ€™s Rp 2.5 trillion.