Batam technically already free trade zone: BIDA

Batam technically already free trade zone: BIDA

JAKARTA (JP): Batam island has technically become a free trade
zone although the law which will formalize its status as such is
still being prepared, chief of the Batam Industrial Development
Authority (BIDA) Ismeth Abdullah said.

"In its development, Batam has functioned as a free trade
zone ... and tax incentives originally intended for industry have
also been enjoyed by all the residents of Batam," he said at a
seminar on the prospects for Batam here on Friday.

He said that the formalization of Batam's status as a free
trade zone was only a matter of time as a draft bill to change
the island's status had already been circulated at the government
level.

"All the indications (for the establishment of a free trade
zone) are very positive, very encouraging. The government has
made studies on its viability, and the results have been
positive," Ismeth added.

Arif Aryman, an specialist with the Office of the Coordinating
Minister for the Economy, confirmed that the government was still
formulating the draft bill which would formalize Batam's status
as a free trade zone.

He said that the draft bill was currently under discussion at
the Ministry of Finance, and it was expected to be finalized
sometime this year before being submitted to the House of
Representatives for approval.

In an attempt to attract foreign investment and bolster export
competitiveness, the government declared Batam, located some 30
kilometers from Singapore, an industrial bonded zone in 1978. In
subsequent years, the same status was given to the islands of
Rempang and Galang, making a total bonded area of 715 square
meters.

Designation as a bonded zone means that all export-oriented
businesses can bring in capital goods and raw materials without
having to pay import duty, value added tax (VAT), and the other
indirect levies normally imposed on such activities.

The tax facilities were later extended to other Indonesian
companies even if their production and services were not destined
for export. This policy led to resentment among companies based
outside the island.

In 1998, the government decided to reimpose valued added tax,
one of the tax incentives available in Batam to ensure equitable
tax treatment for local companies outside of Batam.

However, the ruling, which was originally to take effect in
April last year, was greeted by massive protests both from Batam
residents and from foreign industrialists based there.

Arif said that the government had postponed its decision to
remove tax incentives pending the formalization of Batam's
status, that is, the decision as to whether it was to remain a
bonded zone or be converted into a free trade zone.

He stressed that the designation of Batam as a free trade zone
was crucial for the country to be able to increase exports,
attract investment, increase trade, and stimulate small
businesses in the area.

Ismeth said that as a result of the government's decision to
impose value added tax, many foreign investors had withdrawn
their applications for new investments.

"In 2000, we have had only 49 new investment approvals, when
we could have had 100," he claimed.

Ismeth said that the investors were taking a wait-and-see
stance as to what the government would decide, and how it would
affect their businesses.

However, he said that despite the uncertainty, there were
already 14 new investment approvals worth about $22 million in
the first month of the year.

"Which clearly shows how valuable Batam is for investment,"
Ismeth added.

Foreign companies operating in Batam at the end of 2000
totaled 420 companies, and the number was expected to increase to
700 companies in 2005, he said.

Batam's largest investors came from Singapore, South Korea,
Taiwan and the United States, with its main products being
electronics, steel, pipes, and plastics. (tnt)