Boediono unaware of end to tax treaty

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.