Businesses want delay in Batam tax policy

Fadli/Sari P. Setiogi, The Jakarta Post, Batam

A business association in Batam sent letters to both President Megawati Soekarnoputri and the leaders of the House of Representatives on Thursday, calling for the suspension of a presidential decree taxing domestic transactions on the industrial island.

The Association of the Batam Industrial Zone said in the letter the decree should not be implemented until at least after this year's general elections.

"Tax-free was one of the facilities we offered foreign investors to invest on the island. Now the government has introduced a totally different policy (by issuing the new regulation)," association chairman Johannes Kennedy Aritonang told The Jakarta Post on Thursday.

Presidential Decree No. 63/2003 stipulates that beginning on Jan. 1, cigarettes, liquor and automotive products in Batam will be subject to VAT as well as a luxury tax. Electronic products will be subject to the taxes beginning in March.

According to Johannes, many of the 670 foreign investors on the island were worried by the decree and were considering packing their bags.

"We understand the policy has not yet directly affected the interest of investors, but they are afraid that in the next 18 months Batam will be similar to other regions in terms of tax system," said Johannes.

The head of the Batam tax office, Adjat Djatmika, said the presidential decree would not have a direct impact on foreign investors in Batam because the taxes only covered cigarettes, liquor and automotive products.

He told the Post that with the new regulation, the government could raise Rp 1.2 trillion (US$144.05 million) in VAT and luxury taxes per year from the island.

Adjat also dismissed concerns the new tax policy could cause higher prices for goods in Batam.

"By implementing the two taxes, the government wants to protect domestic industries. At this moment, many illegal goods such as electronics and cellular phones are entering the country through Batam and it weakens our industries.

"With a VAT that will make the price of goods in Batam that same as in other regions, it is expected that people will think twice before smuggling goods onto the island," he said.

The chairman of the Batam Industrial Development Authority, Ismeth Abdullah, said the new tax policy would weaken Batam's competitiveness against similar industrial zones in the region such as Vietnam.