Batam's investors want clear policy on island's status: BIDA
Batam's investors want clear policy on island's status: BIDA
By Devi M. Asmarani
BATAM ISLAND, Riau (JP): Batam Industrial Development Authority (BIDA) said on Friday foreign and local investors here were concerned over the government's seemingly inconsistent economic policy on the island.
BIDA deputy chairman for administration and planning Wendy Aritenang said the investors questioned the government's sincerity in accommodating their commercial needs, as its policy on the industrial island seemed to have been wavering over the last decade.
"A clear policy, especially on the island's status, is the most important thing for investors, because that will determine their estimation of cost structures for their investment here," he said.
Wendy was referring specifically to a 1998 government regulation on the imposition of value-added tax (VAT) on Batam.
The 1998 regulation says export-oriented companies will be subject to receive refunds for the VAT payment only after they prove that they have exported their products.
Wendy said the investors saw this move as a contradiction to the previous policy on Batam which had attracted them to invest in this 415-square-kilometer island in the first place.
"This move will force them to redo their cost structure," he said.
In an attempt to attract investors to the area, the government decided in 1978 to make Batam, some 19 kilometers away from Singapore, an industrial bonded zone. In later years, several islands near Batam were also included in the bonded zone.
According to the 1978 regulation, manufacturers on Batam are free from all import and export duties and "other government levies".
Wendy said the 1998 regulation, which is due to take effect this April, was based on the fact that despite its status as an industrial bonded zone, Batam also has noncommercial inhabitants.
"I understand that what the government tried to achieve with this policy was the sense that justice was being done, that Batam would be treated fairly like other areas in Indonesia.
"But this can have a grave impact on the industry here," he said, adding that investors saw the move as inconsistent.
He said foreign investors' on Batam were mainly concerned that the policy would become an administrative snag for daily business operations.
"They are not convinced that they will be able to get their tax return on time and in the full amount, even with the government's promises," he said.
In addition, they are also concerned that the tax imposition will raise labor costs in the area, he said.
But the local small and medium enterprises, which make up the existing supporting industries for Batam's main industries, will be the most affected by the policy, he said.
He said the supporting industries, on which the tax would be imposed, could lose businesses to their foreign counterparts as the VAT would make them uncompetitive.
"What we will get in terms of tax income from imposing VAT on Batam is far less than what we actually put at stake here," he said.
Wendy said BIDA had proposed the government conduct at least a one-year study before recommending any more new economic policies on Batam.
"We hope to hear (the central government's response) on this proposal pretty soon," he added.
As of November 1998, the combined investment value in Batam amounted to US$2.27 billion, compared to about $2.24 billion in 1998. Wendy said that on Batam, there are 380 foreign investors, mostly from Singapore, and the number is targeted to increase to 750 by 2004, reaching $5 billion in value.