Batam tax, misguided policy<\/p>\n
Your editorial on the subject of applying value added taxes
\nand import duties in Batam (The Jakarta Post, April 20, 2000) was
\ntimely but misguided.<\/p>\n
The issue is creating a serious rift between Jakarta
\nauthorities and the residents of Batam, even including many Batam
\nbased tax and customs officials.<\/p>\n
Your assertion that the 1978 law that established Batam as a
\nfree trade zone was a \"mistake\" is wrong. Batam's competitive
\nedge over neighboring free trade zones (FTZ), such as Penang and
\nLangkawi, occurs precisely because Batam is totally free to
\ntrade, both within the island and overseas.<\/p>\n
This system minimizes encumbrances involved when shipping
\nmaterials into and within Batam. Other places that compete with
\nBatam are \"Bonded Zones\" (BZ), which use a system of bonded
\nwarehouses to transship goods between supplier, factory and
\ncustomer. Bonded warehouses cost more to operate, suffer heavy
\nmaterial handling costs and serious delays involved with custom
\napprovals. Batam's present system is easy and attractive to
\nforeign investors, proven by the hundreds of foreign companies
\nthat have set up operations here in the past 15 years. The FTZ
\nsystem readily lends itself to modern \"just in time\"
\nmanufacturing processes.<\/p>\n
Jakarta's authorities fail to recognize that the types of
\nfactories operating in Batam are highly mobile and highly
\nsensitive to factors which delay goods shipments or increase
\ncosts. Under Batam's unique FTZ system, greedy customs and tax
\nofficials had little opportunity to hinder the flow of goods for
\ntheir own personal gain.<\/p>\n
You are correct in saying that the scariest part of the new
\npolicy is the measure to require all businesses to pay VAT up
\nfront. A great majority of the island's manufacturing industry,
\nlike the tax itself, is in the business of adding value. Batam's
\nfactories take partly finished goods from other factories, add
\nvalue to those goods, then send the goods to yet another factory.<\/p>\n
The goods themselves are often not the property of the
\nfactory; they are the property of a third party. The factory is
\nmerely a contractor to perform certain work on the customer's
\ngoods. As the factory never bought the goods and therefore never
\nsold those goods, VAT should not apply to the goods themselves,
\nonly to the value added by the factory.<\/p>\n
The finance minister argues that it is not fair that the
\nresidents of Batam (with an average US$3,000\/year per capita GNP)
\nshould not pay tax when the rest of Indonesia ($700\/year GNP)
\ndoes. The good minister should come to Batam and personally
\nexplain his ideas to the many unskilled workers who earn Rp
\n8,000\/day. Batam is already the most expensive place in
\nIndonesia, where a plate of rice in the most humble roadside food
\nstall costs Rp 4,000. These new taxes will hit the little people
\nhardest.<\/p>\n
Many have overlooked just how quickly Batam rose from an
\nunknown backwater to become Indonesia's export powerhouse.
\nWarnings by local citizens that Batam's fall could be just as
\nfast as its rise, are not an empty threat. Foreign investors,
\nparticularly the ones in the electronic sector, are highly
\nmobile. Many of the factories in the highly successful Batamindo
\nIndustrial Estate are in their second or third country. In this
\ncompetitive world, a few percent difference in operating margins
\nis enough to prompt then to move.<\/p>\n
Ironically, the IMF is now sending signals that imposition of
\nimport duties and taxes in Batam is no longer one of their
\npriorities. So the wrangle now appears to be between the minister
\nof finance and the people of Batam.<\/p>\n
The people of Batam feel that they are facing an economic
\ndisaster. A single factory layoff could result in 10,000 jobless
\npeople. Almost one hundred companies are contemplating moving. A
\nblockade of the local tax office since the beginning of April has
\nrendered it unable to collect taxes of any kind. This will
\nprobably continue until Jakarta changes its mind, as the people
\nof Batam have nothing to gain and everything to lose by this
\nmisguided policy.<\/p>\n
EVAN W. JONES<\/p>\n
Nagoya, Batam<\/p>", "url": "https:\/\/jawawa.id\/newsitem\/batam-tax-misguided-policy-1447893297", "image": "" }, "sponsor": "Okusi Associates", "sponsor_url": "https:\/\/okusiassociates.com" }