Tax breaks no holiday for multinationals: U.S. expert<\/p>\n
JAKARTA (JP): Multinational investors do not regard tax
\nholidays as important when considering foreign direct investment,
\na senior American economist said yesterday.<\/p>\n
Speaking at a seminar on trade and Investment at the Sangri-La
\nHotel, the USAID-funded Trade Implementation and Policy (TIP)
\nProgram's chief economist, William E. James, said a survey of
\nmultinational investors showed macroeconomic stability and
\nrelatively high economic growth were the main reasons for foreign
\ninvestors to open businesses in a country.<\/p>\n
\"Special incentives such as a tax holiday are unlikely to have
\nmore than a marginal effect on investment flows but are likely to
\nspawn misallocation of time, resources and efforts,\" he said.<\/p>\n
James said restrictions on share ownership, requirements on
\nlocal contents and restrictions on foreign transactions were
\nviewed as strong disincentives for foreign direct investment.<\/p>\n
The seminar was organized by the Asian Region International
\nAssociation of Cooperating Organizations (ARIACO). Other speakers
\nincluded Indonesian businessmen Sofyan Wanandi, Soedarpo
\nSastrosatomo, former Indonesian central bank governor Adrianus
\nMooy and ANZ Bank executive director Alister T. Maitland.<\/p>\n
James said for U.S. multinationals, the lack of effective
\nenforcement of intellectual property rights was a strong
\ndisincentive to foreign direct investment in the manufacturing
\nsector, particularly when it was combined with ownership
\nrestrictions.<\/p>\n
Special incentives offered to firms to invest in low-income
\nregions or in export processing zones may encourage some
\ninvestment but was not the best policy, he said.<\/p>\n
\"Such approaches are not optimum from the standpoint of
\ndevelopment of the local industry through sub-contracting,
\ntechnology transfer and a competition policy,\" he said.<\/p>\n
The Indonesian government recently announced a plan to
\nintroduce corporate tax breaks for investors operating in eastern
\nIndonesia, the country's least developed region.<\/p>\n
However, James did not make his comments in connection with
\nIndonesia's planned tax incentive.<\/p>\n
James said an interesting policy question for Indonesia, was
\nthe role of wholly-owned (at least 90 percent foreign owned)
\nmanufacturers in exporting.<\/p>\n
Dichotomy<\/p>\n
The survey compiled by the Central Bureau of Statistics, found
\na strong dichotomy existed between wholly-owned foreign
\nmanufacturing establishments and those which were joint ventures
\n(less than 90 percent foreign owned), he said.<\/p>\n
\"The former have much higher export orientation than the
\nlatter, even when one controls for industry effects and other
\npolicy effects,\" he said. \"Is it coincidence that export
\nperformance rises dramatically when foreign share ownership
\nreaches at least 90 percent.\"<\/p>\n
He said that there was a similar correlation between high
\nforeign ownership levels and exports in Singapore, which has very
\nfew ownership restrictions.<\/p>\n
Indonesia, therefore, might consider eliminating the
\ndivestment requirements of foreign owners along with further
\nstreamlining the process by which investors get access to land
\nand buildings to facilitate investment.<\/p>\n
\"I need not worry that foreign direct investment will become
\ndominant in the Indonesian economy, if anything industrial survey
\ndata indicate a rising share for domestic privately owned
\nmanufacturing establishments in value added goods and exports,\"
\nJames said.<\/p>\n
He noted that a market open to importing capital equipment and
\nthe freedom to invest were strong leading indicators of future
\neconomic growth and performance of non-oil exports.<\/p>\n
Indonesia can enhance its investment climate by reducing
\ndomestic distribution and marketing restrictions on foreign-owned
\nfirms, and by improving its enforcement of intellectual property
\nrights and maintaining its good record of economic management and
\nhigh growth, he said. (hen)<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/tax-breaks-no-holiday-for-multinationals-us-expert-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}