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)