Cocoa body asks for removal of VAT

JAKARTA (JP): The Indonesian Cocoa Association yesterday urged the government to remove or postpone the implementation of value- added tax (VAT) on all primary agricultural products.

The association's chairman, Litha Brent, in a hearing with members of the House of Representative's Budgetary Commission, said yesterday that such a tax will be burdensome to farmers because in practice, the tax is imposed on a commodity's sale price at the farmer level.

Apart from that, Brent said, the value-added tax, which is based on Law No. 11/1994 and Government Regulation No. 50/1994, is not consistently imposed across the country.

"There is no such tax in North Sumatra and South Sulawesi, but there is in East Java," Brent was quoted by Antara as saying.

Brent said the tax was also becoming a cause of concern to the processing firms of various agricultural products, such as black tea and essential oil. It also reduced the competitiveness of Indonesian cacao products on the international market, Brent added.

He said the imposition of VAT on cacao beans was based on the consideration that the beans must be halved, fermented and washed before being dried.

"This line of process is in fact required for distribution and marketing purposes so the beans do not rot," Brent said.

Brent pointed out that coffee beans are also processed in the same manner but no VAT is imposed on this commodity.

Brent said farmers actually prefer to sell or export cacao beans rather than process them beforehand, as it is less costly. Brent considered it would be more appropriate if VAT was imposed on companies which process dried cacao beans into value-added products.

Indonesia's cacao production is presently about 385,000 tons a year, or 13 percent of the world's production of three million tons.

According to the Indonesian Cocoa Association, domestic production is expected to increase to 400,000 tons by year 2000 in healthy and favorable weather conditions.

Bad weather and an epidemic of the cacao borer has steadily cut back Indonesia's exports since 1993. That year, exports reached 215,000 tons and dropped to 200,000 tons in 1994 and to 196,443 tons in 1995.

Indonesia is currently a major supplier of cacao to the United States, after production in neighboring countries like Brazil declined.

World production since 1991/1992 has faced a deficit of about 60,000 tons a year, but in 1995/1996, a surplus of 90,000 tons is expected.

The surplus is expected to come from the recovery of production levels in the Ivory Coast which reached 1.2 million tons from an average of 900,000 tons in previous years.

The world's annual cacao production has been steady at about 2.4 million to 2.5 million tons in the last few years and is expected to reach 2.7 million tons in 1995/1996. (pwn)