Batam retains its tax status

Batam retains its tax status

JAKARTA (JP): The government said on Monday it had postponed
until next year the implementation of value added taxes and
luxury sales taxes on Batam, pending the issuance of a free trade
zone law currently planned for the island.

Director general for taxes, Machfud Sidik, said the decision
came after the government considered giving Batam free trade
status.

"To avoid any confusion while waiting for the free trade zone
law, we have postponed the implementation of value added tax and
luxury tax in Batam until next year," Machfud told reporters
following a post Idul Fitri gathering.

To raise this year's tax revenue base, the government had
planned to revoke Batam's industrial bonded zone status and start
collecting value added taxes on the island as of January.

But foreign investors and residents on Batam protested against
the plan saying that it would harm the island's business climate.

Batam has become an attractive industrial estate for foreign
investors who mainly come from neighboring Singapore.

Machfud said that the Ministry of Industry and Trade was
drafting the free trade zone bill, under which it proposed to
change Batam's status to a free trade zone.

"This proposal has the House's political support with an
official letter from the House speaker to the President," he
said.

Other regions in consideration for free trade status include,
among others, Bitung in North Sulawesi, Morotai in Maluku and
Biak in Irian Jaya.

The government last month declared Sabang in Aceh as a free
trade zone.

In Batam, the government would lose between Rp 300 billion
(US$31.5 million) and Rp 400 billion per year in potential tax
revenue if Batam was declared a free-trade zone in the future,
Machfud said.

He noted, however, that the free-trade zone status would boost
investment in Batam and help spur the country's economic
recovery. (bkm)