Batam FTZ said to bring more pains than gains

Rendi A. Witular and Fadli, Jakarta/Batam

Government officials warned the House of Representatives on Thursday about widespread smuggling and losses in state income from taxes if the latter insisted on giving Batam full free trade zone (FTZ) status.

Director General of Customs and Excise Eddy Abdurrachman said that the government team had opposed several articles in the bill proposed by the House during the first deliberation of the bills on the island on Thursday.

"There are several articles (in the bill) proposed by the House that could provoke rampant smuggling and underinvoicing, thus putting at risk the country's overall economy," said Eddy on the sidelines of a meeting with the House to deliberate the bill.

The House wants the government to grant FTZ status, not only to industrial zones but also nonindustrial areas of Batam. The island, located only 20 kilometers from Singapore, is one of the most popular industrial zones in the Asia-Pacific region.

The government, on the other hand, is proposing that FTZ status be accorded only to certain industrial areas, known also as "enclave FTZs", which include the industrial zones of Batu Ampar, Batam Center, Kabil, Muka Kuning, Sagulung, Tanjung Uncang and Sekupang.

The House and government have each proposed separate bills for Batam, the first time that such an instance has occurred. A bill is usually proposed by either the government or the House.

The House completed its draft several years ago. However, the government refused to deliberate it and instead drafted its own version, which was completed several months ago.

Eddy said if the House insisted on its bill, the customs directorate would demand more funds from the state to increase supervision of every exit and entry point from and into the island, in order to prevent illicit goods from entering other areas of the country from Batam.

"Batam has already become a haven for smugglers. If it gains full FTZ status, we fear it will become the main center of smuggling in the country," said Eddy.

According to Batam officials, more than 3,000 used cars are illegally imported from neighboring Singapore and Malaysia to Batam every year. Many are taken later to neighboring island Tanjung Pinang and sell easily because they are cheap, yet still in good condition.

The government and the House are also divided on tax exemption facilities for the island. The government wants such facilities to be enjoyed only by those who engage in business activities there, while the House draft bill offers broader tax facilities, which include consumer goods for residents.

Syarifuddin Alsyah, a member of the tax reform team for the Directorate General of Taxation, told The Jakarta Post that the House proposal would result in losses amounting to trillions of rupiah in state income from taxes each year.

"The proposal will not only discriminate against other regions in Indonesia, but will also cause losses to the state," said Syarifuddin.

Elsewhere, Abidin, chairman of the Batam branch of the Indonesian Employers Association (Apindo), told the Post that the business community in Batam was insistent the government grant full FTZ status for the island, in order to attract more investors.

"Some local and overseas investors have warned that they will pull out of the island within six years if the government insists on adopting enclave FTZs, as that will simply make export and import procedures more complicated and expensive," said Abidin.