Batam asks for free trade zone status

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)