Batam tax office ignores House's 'law'

Fadli, The Jakarta Post, Batam

The House of Representatives might have won applause from the proponents of free trade in the industrial island of Batam for its bold move to unilaterally endorse a bill that will change the island into a free trade zone (FTZ).

However, they are now facing the reality that the island's tax officials are unwilling to implement the law.

Sumarno Salim, head of Batam's tax office, said on Wednesday that his office rejected the "law" in line with the central government's policy.

"Whatever the House says, finally, it's the government which takes the action and Batam's tax office is an arm of the government. The House may want free trade system be implemented across Batam, but if the government rejects it, so what?" he told The Jakarta Post.

While the government and the House were arguing whether to implement free trade system across Batam, the government started levying value added tax and luxury tax on several commodities early this year in accordance with the Governmental Regulation No. 63/2003.

Currently, the taxes are imposed on cigarettes, alcoholic drinks, cars and electronic products.

This year, Batam's tax office targeted revenue from the taxes at Rp 443 billion.

Sumarno said he was optimistic to reach the target, citing that his office had thus far collected 40 percent of the target revenue.

Located in the Malacca Straits, about one hour boat ride from Singapore, Batam is one of the nation's prime industrial areas that has attracted billions of dollars investment. The House wants to apply a free trade system across the island, but the government wants to apply the so-called "enclave FTZ" system, under which only businesses operating in selected industrial zones of the island are exempted from taxes.

Both parties proposed their own bills for the island but failed to reach a compromise. Recently, the House made a controversial move by passing its bill into "a law" despite the government's rejection.

Under the nation's legal system, the Constitutional Court may be asked by any parties to review any law, but Minister of Justice and Human Rights Yusril Ihza Mahendra said the government had no plans to file a petition with the court as it considered the "law" endorsed by the House did meet the basic requirement (the government's approval) to be called a law.

Johannes Kennedy Aritonang, chairman of Batam's Association of Industrial Zone, said he hoped Susilo Bambang Yudhoyono, who is set to become the nation's next president, would approve the "law" that has been endorsed by the House.

"We once discussed with SBY about the matter in Bali. He then promised to issue a pro-business policy," Johannes said, calling Susilo by his popular address.

According to him, many foreign investors have decided to pull out of the island once they knew the government would implement an enclave FTZ system on the island rather than a common FTZ system.

Sumarno, however, insisted that investment climate on the island had by no means been affected by the government's plan to apply the enclave FTZ system.