Eastern Indonesia needs tax holiday facilities

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)