Eastern Indonesia needs tax holiday facilities
JAKARTA (JP): The new tax holiday facilities should be granted to all manufacturing industries to encourage more investments in Indonesia's eastern provinces, economists and business people said.
Yusuf Kalla, coordinator of the eastern provinces' chambers of commerce and industry, said in Ujungpandang, South Sulawesi on Saturday that his party will send a letter to President Soeharto asking him to consider giving the facilities to all industries, especially those operating in the eastern provinces.
"If tax holiday facilities are granted to upstream industries only, it means that the facilities will be mostly enjoyed by a number of large businesses in the capital (Jakarta) and will not touch businesses in eastern Indonesia," Kalla told Antara after chairing a coordination meeting among provincial chambers in eastern Indonesia.
If that is the case, Kalla continued, it will only widen the existing development gaps between the western and eastern provinces. He suggested that such tax incentives be directed towards eastern provinces, which -- in terms of development level -- still lag behind the western provinces.
According to the official classification, Indonesia's western provinces cover 14 provinces in Java, Bali and Sumatra islands. The eastern provinces cover the remaining 13 provinces in Kalimantan, Sulawesi, Nusa Tenggara, Maluku and Irian Jaya islands, including East Timor province.
Agreeing with Kalla's suggestion, economist Lucky Sondakh -- a member of the National Research Council and the Indonesian Economists Association -- said in Manado, North Sulawesi that tax incentives should not only be given to large firms, but also to small and medium firms.
What is more important is how tax holiday facilities can encourage regional economic development, with a strong basis on the economic welfare of the people, Sondakh noted.
After a 13 year abstention, the government reintroduced tax exemptions last month for newly operating companies in some industries.
The industrial sectors to receive tax holidays will be determined by President Soeharto based on recommendations by the Team for Assessment of Tax Facilities for Certain Industries, headed by Coordinating Minister for Economy and Finance Saleh Afiff.
State Minister of Investment Sanyoto Sastrowardoyo said recently that companies qualifying for tax breaks would have to produce raw materials for industry, export goods, farm commodities or strategic, high-technology goods.
The tax holiday is expected to attract large multi-national companies to invest, Sanyoto said. "If the large ones come here, the small ones will follow."
The qualifying companies will be exempted from paying income tax for up to 10 years. Companies operating outside of Java and Bali will be exempted for 12 years, which is expected to attract more investments in the eastern provinces.
According to the Investment Coordinating Board, 14 western provinces -- which cover 31.6 percent of Indonesia's total areas -- dominate the country's gross domestic products by 84.4 percent, domestic investments by 81.6 percent (in terms of value) and foreign investments by 85.3 percent.
As of last April (since 1967), the government had approved 8,544 domestic investment projects worth Rp 349.5 trillion (US$148.7 billion) in the western provinces and only 1,484 domestic investment projects worth Rp 78.7 trillion in the eastern provinces.
Meanwhile, during the same period, approved foreign investments in the western provinces had reached $134.2 billion in 4,004 projects, while approved foreign investments in the eastern provinces stood at only $23.2 billion in 327 projects.
Kalla noted that better infrastructure and geographical features, as well as the larger size of the markets in the western provinces, had been contributing to investment concentration in the areas, leaving the eastern provinces almost deserted.
He said the government's policy to give protection to large companies operating in Java makes the investment climate in the eastern provinces less attractive.
In addition, the government-controlled trading policies on commodities produced mostly in the eastern provinces -- such as clove, copra, rattan and logs -- have shifted capital accumulations of the commodities from the eastern provinces to the central government or businesspeople in Jakarta.
Kalla suggested the government should provide lower income tax rates and low-interest lending to attract investors to open up businesses in the eastern provinces. (rid)