Business leaders doubt state budget targets

Business leaders doubt state budget targets

Tony Hotland, The Jakarta Post/Jakarta

Noted businesspeople have expressed doubt over the 2005 state
budget draft, saying the targets contained in the budget are
unrealistic and could harm investment.

Indonesian Chamber of Commerce and Industry (Kadin) chairman
Mohammad S. Hidayat warned that the government's target of higher
tax revenue for 2005 should not curtail the flow of investment.

"I think the target is ideal, but the government has to make
sure it will not hamper new investment due to higher taxes,"
Hidayat said on Monday after the presentation of the draft budget
by President Megawati Soekarnoputri.

The government hopes to collect some Rp 297.5 trillion
(US$32.11 billion) in tax revenue next year, including Rp 141.9
trillion from income tax, Rp 98.8 trillion from value-added and
luxury taxes, and Rp 28.9 trillion from excise duties.

That figure is higher than the 2004 tax revenue target of Rp
260 trillion. There are fears among the business community that
higher tax revenue will be achieved through increases in the tax
rates.

"The tax rate is used to support state revenue and to attract
investment. No investment will come if taxes are too high. It is
an important factor to meet the targeted economic growth of 5.4
percent because we cannot always rely on (domestic) consumption,"
Hidayat said.

The country's economic growth over the last few years has been
largely driven by domestic consumption. Over this period,
investment, particularly foreign investment, has lagged behind
due to what is seen as an unfavorable investment climate here.

Hidayat also said the projected economic growth of 5.4 percent
in 2005, compared to expected growth of 4.8 percent in 2004, was
a bit too optimistic, pointing out that there were no adequate
incentives to provide a significant boost to investment.

"Kadin sees 5 percent growth. But the government first needs
to assure legal certainty, to simplify the bureaucracy at the
Investment Coordinating Body and provide conducive laws on
taxation and investment," he said.

Hidayat lamented the small allocation for the building of
infrastructure, about Rp 12.4 trillion of total state
expenditures of Rp 264.9 trillion.

"It should be about Rp 50 trillion to help jack up the
economy. Unfortunately, we have to set aside as much as Rp 64
trillion just to service public debt. That's the problem," he
said.

The chairman of the Indonesian Employers Association, Sofjan
Wanandi, dismissed the possibility of increased tax rates, saying
such a move was "impossible".

"There is no way the government can increase rates in a
situation like now where investment is slack. In fact, the
government should lower the rates to make us competitive with
surrounding countries," he told The Jakarta Post.

Sofjan said the most feasible way to increase tax revenue was
to increase the number of taxpayers.

"For example, if the government could combat all kinds of
illegal economic activities (like smuggling), the government
would surely reap more taxes," he said.

Sofjan said all of the economic targets in the draft bill were
unrealistic, speculating that there was a political motive behind
them to help Megawati win reelection.

"How is the economy going to grow by 5.4 percent with sluggish
investment and a minimal allocation for development, since most
of the expenses are for the gas subsidy and debt payments? The
government does not even have money left for the maintenance of
infrastructure," he said.