Contractors Complain Regional Taxation Is Penalizing Industry During Lean Times
PT Swa Kelola Sukses, a Jakarta-based earthworks and heavy equipment rental company operating in Central Kalimantan Province, is one of hundreds of coal mining contractors that have been badly affected by the taxes imposed by local governments, especially those relating to heavy equipment.
And with the House of Representatives planning to strengthen regional authorities’ power to increase those taxes, Swa Kelola’s president director, Freddy Samad, says it’s time for them to back off.
Since last year, the House has been deliberating a bill on regional taxes and tax rebates that will further empower regional governments to impose taxes on local industries.
The new law would regulate the use of heavy machinery in the mining, plantation and construction industries, and classify the machines as motor vehicles rather than production equipment. The change in status would make the machinery subject to road and other licensing taxes.
More than 200 heavy equipment contractors operate in Indonesia, with each contractor owning between five and 2,500 machines. The equipment consists of such machines as backhoe loaders, shovels, crawlers and excavators.
Speaking at a discussion on regional taxes convened by the Indonesian Mining Services Association on Thursday, Freddy said that the existing regional autonomy law already allowed local governments throughout the archipelago to slap charges on heavy equipment used by mining contractors.
He said this was particularly common in resource-rich provinces like Central and East Kalimantan and Bengkulu on Sumatra Island.
Local governments, Freddy said, see the taxes as a way to collect money for their budgets. But the tariffs are putting a strain on the sector, especially amid the recent decline in commodity prices.
“Of course all regulations issued by local governments are legal, but are they appropriate?” Freddy said.
“In this time of crisis, we need incentives from the government, not more taxes since we already pay various taxes, including import and value-added taxes for the machinery.”
In one example of how the current tax practices affect business, Freddy said that the Central Kalimantan government had imposed a 0.3 percent annual usage tax on all heavy machinery based on the sale price of the vehicle, which was set by the central government.
On top of that, he said, contractors also have to pay an extra charge of 0.5 percent of the sale price when buying a vehicle.
When charging businesses, however, Freddy said that the local government failed to disclose what formula was used to determine the tax levied on the vehicles. He said the total tax burden for vehicle purchases ended up being about 3.5 percent.
Swa Kelola operates around 200 units of heavy, earth-moving machinery, which range in price from $60,000 to more than $1 million for the largest and most specialized machines. One wheel on a large earth-mover can cost up to Rp 75 million ($6,750), Freddy said.
He blamed the extra charges for the company’s outstanding debt, which has ballooned to Rp 56 billion since 2002, when the law on regional taxation was first issued.
Faced with these extra charges, Swa Kelola and many others have refused to pay the Central Kalimantan government, Freddy said.
“We hope the [central] government will annul the plan to impose the heavy machinery taxes on us, and also clear us from our debts,” he said, adding that the provincial government had warned contractors to either pay their outstanding debts or have their licences revoked.
Freddy said that mining services contractors were the unwitting victims of a war between the central and local governments, each of which wanted the right to impose taxes on industry. If this battle is not halted, Freddy warned, its high costs could eventually lead to serious losses in the sector.
Freddy suggested that the conflict grew out of a long-held belief that the central government took too much from the regions during the rule of former President Suharto, with local authorities now trying to take some of that wealth back.
Tjahyono Imawan, the chairman of the mining services association, said that heavy machinery sales last year did not reach vehicle makers’ annual target of 10,000 units, due in large part to the global financial crisis.
Small- and medium-size miners, he said, have been forced to scale down or halt their operations during the downturn.
“In September of last year, we almost reached the [sales] target,” Tjahyono said.
“However, in the following months, we only imported somewhere between 8,000 and 9,000 units, and their estimated value was around $1.5 billion.”
And with the House of Representatives planning to strengthen regional authorities’ power to increase those taxes, Swa Kelola’s president director, Freddy Samad, says it’s time for them to back off.
Since last year, the House has been deliberating a bill on regional taxes and tax rebates that will further empower regional governments to impose taxes on local industries.
The new law would regulate the use of heavy machinery in the mining, plantation and construction industries, and classify the machines as motor vehicles rather than production equipment. The change in status would make the machinery subject to road and other licensing taxes.
More than 200 heavy equipment contractors operate in Indonesia, with each contractor owning between five and 2,500 machines. The equipment consists of such machines as backhoe loaders, shovels, crawlers and excavators.
Speaking at a discussion on regional taxes convened by the Indonesian Mining Services Association on Thursday, Freddy said that the existing regional autonomy law already allowed local governments throughout the archipelago to slap charges on heavy equipment used by mining contractors.
He said this was particularly common in resource-rich provinces like Central and East Kalimantan and Bengkulu on Sumatra Island.
Local governments, Freddy said, see the taxes as a way to collect money for their budgets. But the tariffs are putting a strain on the sector, especially amid the recent decline in commodity prices.
“Of course all regulations issued by local governments are legal, but are they appropriate?” Freddy said.
“In this time of crisis, we need incentives from the government, not more taxes since we already pay various taxes, including import and value-added taxes for the machinery.”
In one example of how the current tax practices affect business, Freddy said that the Central Kalimantan government had imposed a 0.3 percent annual usage tax on all heavy machinery based on the sale price of the vehicle, which was set by the central government.
On top of that, he said, contractors also have to pay an extra charge of 0.5 percent of the sale price when buying a vehicle.
When charging businesses, however, Freddy said that the local government failed to disclose what formula was used to determine the tax levied on the vehicles. He said the total tax burden for vehicle purchases ended up being about 3.5 percent.
Swa Kelola operates around 200 units of heavy, earth-moving machinery, which range in price from $60,000 to more than $1 million for the largest and most specialized machines. One wheel on a large earth-mover can cost up to Rp 75 million ($6,750), Freddy said.
He blamed the extra charges for the company’s outstanding debt, which has ballooned to Rp 56 billion since 2002, when the law on regional taxation was first issued.
Faced with these extra charges, Swa Kelola and many others have refused to pay the Central Kalimantan government, Freddy said.
“We hope the [central] government will annul the plan to impose the heavy machinery taxes on us, and also clear us from our debts,” he said, adding that the provincial government had warned contractors to either pay their outstanding debts or have their licences revoked.
Freddy said that mining services contractors were the unwitting victims of a war between the central and local governments, each of which wanted the right to impose taxes on industry. If this battle is not halted, Freddy warned, its high costs could eventually lead to serious losses in the sector.
Freddy suggested that the conflict grew out of a long-held belief that the central government took too much from the regions during the rule of former President Suharto, with local authorities now trying to take some of that wealth back.
Tjahyono Imawan, the chairman of the mining services association, said that heavy machinery sales last year did not reach vehicle makers’ annual target of 10,000 units, due in large part to the global financial crisis.
Small- and medium-size miners, he said, have been forced to scale down or halt their operations during the downturn.
“In September of last year, we almost reached the [sales] target,” Tjahyono said.
“However, in the following months, we only imported somewhere between 8,000 and 9,000 units, and their estimated value was around $1.5 billion.”