Electronics producers renew call for tax review following Sony decision

The Jakarta Post, Jakarta

Electronics manufacturers renewed calls on Thursday for the government to review its tax policy on electronics and to boost its antismuggling efforts to help locally made goods compete in the local market.

The call comes in the wake of the bombshell announcement by Japanese electronics giant Sony Corp. that it is relocating its audio plant to Malaysia.

Lee Kang Hyun, chairman of the Association of Indonesian Electronics Producers, said multinational companies such as Sony were primarily interested in Indonesia's huge potential market. By opening manufacturing plants in Indonesia, they hope to produce cheaper electronics products given the closeness to the market.

However, they are having to compete with cheaper products illegally smuggled into the country, he said.

Furthermore, he said, the government's tax policy has curbed the growth of electronics producers.

He said that in order to grow, electronics manufacturers had to continue making new and ever-more sophisticated products, such as today's digital products.

But electronics producers in Indonesia are reluctant to do so given the tax policy here, which obliges them to establish a new business entity anytime they want to produce a new item.

This policy prevents producers from using their profits to cover the production costs of the new product, which cuts into the government's tax revenue.

"Electronics companies in Indonesia must continue producing new items. Otherwise they will be crushed by the competition. But the tax policy discourages them from doing so," Lee, who is also general manager of PT Samsung Indonesia, said on the sidelines of ceremony to introduce four new Samsung mobile phones.

At present, Lee added, all of the different taxes levied on electronic goods reach 52.5 percent.

Lee said the government should cut the luxury tax and value added tax (VAT) on electronics goods to below 10 percent and 5 percent respectively.

Lower taxes, Lee said, are the key to preventing smuggling as this would enable local producers to cut their prices to compete with smuggled products.

The director general of taxation at the Ministry of Finance, Hadi Purnomo, claimed that the tax policy in Indonesia was more competitive than in many other countries.

"I think our tax policy is competitive compared to other countries, either in terms of rate or incentive facilities for foreign investors," Hadi said as quoted by Antara.

Explaining the incentives for foreign investors, Hadi said the dividend tax payable by foreign investors is cut from 20 percent to 10 percent if the investors suffer losses in their first and second years.

The investors also receive certain benefits from the government, Hadi said without going into detail.

Thus far, Sony has remained silent about its reasons for relocating its plant, leaving the government and businesspeople pointing their fingers at each other.

However, Lee said, Sony's decision might not have been based solely on problems within Indonesia's electronics industry.

Global competition, which is getting tighter, has forced the electronics giant to reconsolidate in order to survive, he said.

Meanwhile, the relocation of the plant will just add to the country's unemployment woes, with another 1,000 jobs lost.

Minister of Manpower and Transmigration Jacob Nuwa Wea, claiming the government had yet to receive an official explanation from Sony about the planned closure, said his office would summon the management of PT Sony Electronic Indonesia to explain their decision.

Jacob also met with representatives of Sony's labor union earlier on Thursday.

"I asked the union to seek clarification from the management. If necessary they should ask for an explanation directly from Japan," Jacob said.