Batam officials try to lure more Japanese investors

Hendarsyah Tarmizi, The Jakarta Post, Tokyo

Domestic and foreign companies operating in Batam will receive a broad range of tax incentives under the proposed law now being deliberated upon by the House of Representatives (DPR).

Speaking at a seminar entitled "Business Opportunities in Batam" at the New Otani Hotel in Tokyo on Tuesday, the chairman of the Batam Industrial Development Authority (BIDA), Ismeth Abdullahl, said the new tax incentives would include a tax holiday of between three to five years.

"Such tax incentives are quite important to enable us to compete with other industrial bonded zones in the Asia-Pacific," Ismeth said.

At present, investors operating in Batam and nearby islands of Rempang and Galang are exempted from paying import duties, value- added tax and sales tax on luxury goods. But these tax breaks are still technically required by some government regulations.

"These tax facilities will be stipulated in the proposed trade zone law to give certainty to investors," Ismeth said.

Speakers at the seminar, which was organized by BIDA in cooperation with Sumitomo Bank included Indonesian ambassador to Japan, Abdul Irsan, the deputy chairman of the Investment Coordinating Board (BKPM), Risaldi Kasri and the chairman of the Japan-Indonesia Business Association of Kansai, Hajime Kinoshita.

"The geographic advantage of Batam, which is about 20 kilometers south of Singapore, is no longer enough to lure investors," Ismeth said at the seminar, in which about 80 Japanese businesspeople attended.

"We need to not only improve the infrastructure, but also the tax incentives so that investors' operating costs in Batam will be lower than their rivals, for instance, in China," he added.

In addition to the improvement of the fiscal incentives, BIDA also continues to upgrade the existing infrastructure facilities such as roads, seaports and the airport to make the island more attractive to investors.

Three ports with international standard facilities have been built at Sekupang, Batu Ampar and Kabil, to support export and import activities of the industrial and manufacturing companies on the island.

The Batam industrial bonded zone, which has now been expanded into Rempang and Galang islands, has an international airport to meet the rapid increase in the flow of goods to and from the island. Nadim International Airport, with a 4,000-meter runway, is capable of serving jumbo jets such as the Boeing 747.

Ismeth said that the Batam authority would expand cargo handling facilities at Batu Ampar port to meet the sharp increase in the cargo traffic. With the expansion plan, Batu Ampar will be able to handle one million containers, or five times more than at present.

"The expansion is important to meet the increase in the number of foreign companies which are expected to reach 800 by 2005," he added.

Investment in Batam has showed a continued increase during the past five years despite the sharp decline in direct foreign investment in the country as a whole.

At present, there are about 650 foreign companies from 34 countries operating in Batam and the nearby islands, with total investments of about US$3.7 billion. The number of Japanese companies is about 50 with a combined investment of $400 million. They are mostly engaged in electronics, oil and gas as well as plastics.

"As of July this year, there were an additional 35 foreign companies with an investment of about $62.2 million," Ismeth said.

"In addition, there are also 10 existing foreign companies which will expand their manufacturing plants this year with a total investment commitment of about $48 million," he added.

Ismeth told the Japanese investors that starting next year, as part of the free trade agreement between Singapore and the U.S., investors in Batam would receive special tax facilities when exporting their products to the U.S.

"These incentives will affect 266 types of IT and medical related products," he added.

Besides becoming a major investment destination in the Asia- Pacific region, Batam has also emerged as one of the country's most important tourist destinations. More than one million tourists visited the island last year, making it the second most popular area in Indonesia. Bali is still first.