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.