Capital goods imports still exempt from VAT

JAKARTA (JP): Capital goods imported by domestic and foreign investment projects, which have their licenses issued by the end of March 1996, are still exempt from the value added tax (VAT) and the luxury sales tax, the government announced yesterday.

Tax Director General Fuad Bawazier explained in a circular that the tax relief is being granted under the condition that the investment projects must begin construction by the end of March 1999 at the latest.

The circular was issued to provide legal certainty to investors with regard to the enforcement of Law No.11/1994, which amends Law No. 8/1983 on VAT and luxury sales tax.

Law No. 11/1994, effective as of last January, annuls the Finance Minister's Decree No. 577/1989, which authorized the Investment Coordinating Board (BKPM) to postpone or exempt the collection of VAT and luxury sales tax on particular capital goods imported by investors.

The VAT and luxury sales tax exemptions have been granted to stimulate investment.

Transition

"However, since the implementation of investment projects often takes several years, investors need a transition period to abide by the new rule," Fuad explained.

The new law sets the VAT rate at 10 percent and luxury sales tax with a minimum of 10 percent and a maximum of 50 percent.

Fuad said the transition period would allow enough time for investors to implement their projects.

According to the circular, the relief of VAT and luxury sales tax is granted to capital goods imported for both new projects and the expansion of existing projects.

Investors will see the facility as quite helpful, he said, as it exempts them from the obligation to pay VAT and luxury sales tax up front on imported capital goods.

Without the facility, he added, investors would have to pay the taxes even before their projects come on stream.

However, the VAT and luxury sales tax exemption does not seem to be a major consideration for foreign investors interested in doing business in Indonesia.

BKPM reported that the total value of foreign investment projects licensed during the first nine months of this year has already exceeded US$30 billion, much more than the $18.4 billion approved in the same period of last year and an improvement on the $23.7 billion licensed the whole of last year.

"That, I think, proves once again that tax incentives are not the most influential factor for investors in selecting the site of their ventures," Fuad noted. (vin)