Income tax waived<\/p>\n
When the five-year income tax holiday facility was abolished
\nas part of the 1984 tax law reforms the Indonesian government
\npersistently argued, in response to businessmen's complaints,
\nthat tax exemptions were not a primary factor influencing
\ninvestment decisions. The tax holiday facility remained excluded
\nfrom the tax laws enacted in the second major tax law reform in
\n1995, even though the competition from other ASEAN countries
\nwhich offered such tax incentives had become increasingly keen.<\/p>\n
But Government Regulation No.45\/1996, issued last week,
\nunexpectedly reintroduced the tax holiday incentive. Even though
\nthe regulation does not explicitly call the facility a tax
\nholiday but couches it under the phrase \" the income tax is borne
\nby the government\", the bottom-line effect is the same. The
\nphrase is used simply to circumvent the tax laws which do not
\nstipulate anything about income tax exemptions.<\/p>\n
The new incentive is even more generous in that the income tax
\nexemption is valid for 10 years for specified businesses on Java
\nand Bali and for 12 years on other islands. The pre-1984 tax
\nholiday lasted only for five years after the start of commercial
\noperations. Obviously, the tax incentive is designed to be an
\nadditional stimulus to new investment. The incentive can serve as
\na tool to direct more investments to the areas the government
\ngives top priority to for development.<\/p>\n
Admittedly, as the government argued in the mid-1980s, income
\ntax exemption is not among the primary factors considered by
\nbusinessmen when making investment decisions, especially after
\nthe highest income tax bracket was lowered to 35 percent from 40
\npercent in the 1995 tax law reform. After all, tax is paid out of
\nprofits and is a fiscal tool which every businessman has to live
\nwith wherever he does business.<\/p>\n
The most important factors that have the greatest influence on
\nthe siting of investment ventures are political stability,
\nnatural and human resources, consistency in economic policy,
\nadequate basic infrastructure, legal certainty (adequate
\ncommercial laws and strong law enforcement), an efficient
\nbureaucracy and a potential market.<\/p>\n
Indonesia's weakest points, we should magnanimously
\nacknowledge, are related to legal certainty, inefficient
\ngovernment bureaucracy and inadequate basic infrastructure,
\nnotably outside Java and Bali. The government is fully aware of
\nthese weaknesses but it also realizes that removing these
\ndisadvantages takes a lot of time and, in so far as the
\nbureaucracy is concerned, also involves a gradual, educational
\nprocess. The fiscal measure of the 10-12 year tax holiday could
\nthus serve as an additional, instant incentive to offset the
\ndisadvantages of those weaknesses.<\/p>\n
We don't share the fear that the tax holiday will adversely
\naffect government revenues. As long as the incentive does
\nstimulate new investment ventures, the new businesses will create
\njobs which in turn will generate greater public purchasing power.
\nThis should increase domestic market demand for services and
\ngoods and provide the government with additional revenue through
\nvalue-added tax. One should also remember that the exemption only
\napplies to income tax. The government can still generate revenue
\nfrom income tax on the employees and from the value-added tax on
\nthe transactions undertaken by the new businesses.<\/p>\n
The special team in charge of implementing the tax holiday
\nfacility has yet to select which business areas will be entitled
\nto the incentive. We hope the facility will be granted to the
\nkinds of businesses which will have the greatest positive impact
\non the economy: The development of infrastructure such as power
\ngeneration, toll roads, seaports and airports;
\ntelecommunications; the agro-industry sector and businesses
\nmanufacturing basic and intermediate industrial materials which
\ncurrently have to be imported.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/income-tax-waived-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}