Batam tax scares investors

Batam tax scares investors

SINGAPORE (AP): The Indonesian government's decision to raise
production costs on the island of Batam off the coast of
Singapore could cause some international companies to leave, a
spokesman for Batam's business community said Monday.

The prospect of a value-added tax and increased wages have
lessened the appeal of Batam, up until now a tax-free haven for
international investors.

"We'll just have to wait and see," said Paul Tan, co-chairman
of the Batam Singapore Club.

Last Friday, Indonesian Trade and Industry Minister Jususf
Kalla said the Indonesian government would introduce the 10
percent tax gradually over a three month period, fully coming
into force in July.

Jakarta first announced the range of new taxes April 1. After
protests from Batam investors, who threatened to move their
businesses to Singapore, the government backed down. But it
decided last week to implement the tax despite the likelihood of
companies leaving.

He said cheap labor had been a strong incentive for
international corporations to move their operations to Batam, but
it may not be powerful enough to keep them there once the new
regulations come into effect.