Debtors must meet criteria to enjoy tax facility: JITF

JAKARTA (JP): Companies whose debt restructuring process were mediated through the Jakarta Initiative Task Force (JITF) must meet certain criteria to enjoy a newly approved tax relief facility, JITF chairman Bacelius Ruru said on Wednesday.

Bacelius said the criteria included the survivability prospect of the company in the post-restructuring period.

"It depends on whether the debt restructuring will result in a company commercially viable to continue operation or not," he said at a discussion on debt restructuring.

Ruru said the technical criteria would be decided by a newly formed one-stop facilitation team, which groups several related senior government officials and is coordinated by the JITF chairman.

The House of Representatives approved earlier this week an amendment to the income tax law which allows a tax break for companies whose debt restructuring process was made through the mediation of the JITF.

An indebted company whose debt restructuring process included a debt "haircut" facility from its creditors was supposed to pay tax under the previous law because the company theoretically enjoyed some income from the debt reduction.

Ruru said under the new law, companies whose debt restructuring process was made through JITF were exempt from the tax payment. But he stressed that such incentives would be given only to companies under the JITF program, and not including those which restructure their debts through the Indonesian Bank Restructuring Agency (IBRA).

"That is what the lawmakers ruled. The tax relief facility is only for JITF," he said.

He explained that the tax break was part of the incentives to be provided through JITF to debtors who had been "cooperative" in their debt restructuring process.

He said cooperative debtors were those who had displayed good will in settling their loan and had attended each scheduled creditor-debtor meeting.

JITF was formed by the government in 1998 to help accelerate the debt restructuring process of the country's private sector. But the task force only plays a mediator's role. Unlike IBRA, it has no legal power to seize assets or force debtors to repay their loans.

The task force is targeted to help in the restructuring of some US$10.5 billion of corporate sector debts this year, and as of July it had restructured about $5 billion.

JITF can receive a "debt restructuring case" from debtors, creditors or from the Financial Sector Policy Committee (FSPC).

The committee, which groups several senior economic ministers, has said it would gradually transfer debt cases in which IBRA was a minority creditor to JITF.

IBRA has received more than Rp 200 trillion worth of non- performing loans from closed banks and recapitalized banks.

Ruru said there were also incentives to be given by Bank Indonesia, the Capital Market Supervisory Agency (Bapepam) and the Jakarta Stock Exchange (JSX).

He said the task force had signed an agreement with JSX in which cooperative debtors would be protected from being delisted from the exchange within a certain period.

But Ruru said in addition to incentives, JITF would also impose sanctions on uncooperative debtors.

He explained that once debtors and creditors entered the JITF restructuring mechanism, they would be given a deadline to complete certain restructuring stages, and if debtors failed to meet the deadline they could be labeled uncooperative.

He said uncooperative debtors would be handed over to the committee and later transferred to the Attorney General's Office to file for bankruptcy.

"The government of Indonesia is committed to making the debt restructuring program successful," Ruru said.

Ruru said the committee was planning to transfer more cases to JITF to push for more debt restructuring deals.

"The committee is considering transferring between one and three cases per month. This is a huge volume but I think it's still manageable for us," he said.

But he added that a stable exchange rate of the rupiah was crucial to ensure a successful debt restructuring process.

He said the current exchange rate of Rp 9,000 to the U.S. dollar was not "favorable". (rei)