Boediono unaware of end to tax treaty

Rendi A. Witular, Jakarta

Minister of Finance Boediono admitted on Tuesday he had not been informed about the decision of the Directorate General of Taxation to scrap a tax treaty with the Republic of Mauritius, a further signal of poor relations between the two agencies.

"I haven't received the report on the termination of the treaty yet as I've only just heard about it from the newspapers. I will have to confirm (the termination) first with (Director General of Taxation) Hadi Purnomo," Boediono said on the sidelines of a House of Representatives session.

The directorate is under the auspices of the Ministry of Finance.

The body, with the government's blessing, decided to end the country's tax treaty with the Republic of Mauritius next year amid suspicions the facility had been abused by non-Mauritian investors, including Indonesian companies, to avoid tax obligations.

According to an internal circular issued by the directorate dated June 24, which has been confirmed by Hadi, the eight-year bilateral treaty will cease to apply from Jan. 1, 2005.

However, the government has never officially specified the reasons behind the termination.

In line with the circular, the government has issued a diplomatic note No. 289/EKON/14/VI/04 on the revocation of the treaty.

Notification the treaty would be scrapped was sent to the Mauritian Ministry of Foreign Affairs and International Commerce via the Indonesian Ambassador to Tanzania in late January.

Until now, it remains unclear who proposed the termination of the treaty, as Hadi has refused to elaborate on the issue.

"A decision has been taken. I think it is not important for you (the press) to know the reason," Hadi said on Tuesday.

The Indonesian government has signed tax treaties with 54 countries, including small nations such as Luxembourg, Tunisia, Algiers, Ukraine, Slovakia, Seychelles, Sudan, Syria, Uzbekistan, and Mongolia.

The treaty with Mauritius was signed in 1997 to avoid the double-taxation of Mauritius residents or companies in Indonesia, and Indonesian citizens or companies in the tiny African island state.

The case is not the first time the finance ministry and the directorate have been at odds.

Previously, the directorate considered a controversial plan to turn the tax office into an agency independent from the ministry, without the knowledge of Boediono.

Several tax officials reportedly lobbied President Megawati Soekarnoputri and State Minister of State Apparatus Faisal Tamin to sever the directorate's ties with the ministry.

The move enraged Boediono, who later sent a warning letter to Hadi, and a recommendation to Megawati to reconsider the plan.

Separately, Indonesian Economic Recovery Committee chairman Sofjan Wanandi hailed the government's decision to scrap the tax treaty. He said the island had long been used by recalcitrant local businessmen to repurchase assets managed by the now-defunct Indonesian Bank Restructuring Agency and to evade or pay less tax.

Sofjan, who is also a businessman, said the negative impact to the Indonesian economy would be small. "I think it is a positive decision," he said.