Batam asks for free trade zone status

JAKARTA (JP): The Batam Industrial Development Authority urged the government on Thursday to change the island's status from an industrial bonded zone to a free trade area to make it more attractive and credible for foreign investment.

The authority's chairman, Ismeth Abdullah, said at a seminar here that Batam's free trade zone status should be ratified by law to provide a strong legal basis for investors to do business on the island.

"The conditions in Batam, near Singapore, actually resemble a free trade area ... Investors are happy with the current arrangement, but they still ask for a clear-cut legal assurance for their investment which, they believe, can be provided only by a law on the concept of free trade zones," he told a seminar on investment opportunities in Batam.

He said a free trade zone would certainly make Batam more attractive for business because that status definitely exempted the island from various taxes, like value-added tax (VAT), luxury taxes and export and import taxes.

Ismeth said Batam currently offered simple immigration procedures, easy export and import bureaucracy, exemptions from export and import taxes and special land lease permits for 80 years to attract investors.

In an attempt to attract investors to Batam, the government decided in 1978 to make the island, some 19 kilometers from Singapore, an industrial bonded zone. In later years, several islands near Batam, such as Karimun and Bintan, were also included in the bonded zone.

Manufacturers on Batam are exempted from import and export duties and "other government levies" so that they can comfortably do business on the natural resource-scarce island.

The government, however, was planning to collect VAT and luxury tax on domestic sales in Batam in January next year, he said.

"This inconsistency spooks investors. They, therefore, want Batam's status to be legislated as a free trade zone to strengthen legal certainty for businesses operating on that island," he said.

He said that the plan to impose VAT and luxury taxes in Batam had discouraged many would-be foreign investors, pointing out that about 60 foreign investors had canceled their investment plans for the island.

Ismeth insisted that better tax incentives provided through the free trade zone concept would be the most effective way of attracting more investors to Batam.

He predicted that the number of foreign investment ventures on the island would increase to about 700 by 2005 from about 400 at present, mostly from Singapore, if Batam was made a free trade area.

Ismeth added that exports from Batam totaled US$4.8 billion last year or about 10 percent of Indonesia's total exports.

Minister of Industry and Trade Luhut Panjaitan, who attended the seminar, said he supported the Batam authority's call for transformation of the island's status to a free trade zone.

"Changing Batam's status to a free trade zone will most likely make the island much more attractive for investors," he told the seminar participants.

Luhut said the government was currently conducting a study to evaluate the best arrangement for Batam within the country's trade regime.

He added that the result of the study on Batam was expected in November so that the government could decide on the final status of the island by January.

The idea of transforming Batam, as well as other Indonesian islands near Singapore, such as Karimun and Bintan islands, from a bonded zone to free trade area was first aired last November by President Abdurrahman Wahid.

Despite mixed reactions from experts and officials, the government has established a team of university researchers and government representatives to study the feasibility of the idea.

Luhut said similar studies would be made on Dumai, Bintan and Karimun in the Riau archipelago, on Bitung in North Sulawesi and Morotai and Biak in Irian Jaya. (cst)