Exporters get break on Batam tax policy

Exporters get break on Batam tax policy

JAKARTA (JP): Minister of Trade and Industry Yusuf Kalla made
clear on Friday that the introduction of value-added tax (VAT)
and sales tax on luxury goods on Batam island would not affect
export-oriented companies.

"The imposition of value-added tax and the luxury tax will not
affect export-oriented businesses," he told a news conference.

Export-oriented companies on the island, like those in other
industrial bonded zones, are exempt from VAT and the luxury sales
tax, he said.

In addition to his regular ministerial duties, Kalla is
temporarily replacing finance minister Bambang Sudibyo during the
latter's attendance at the Paris Club meeting.

Kalla said the taxes, which would be imposed on companies
selling their products locally, would be implemented gradually.

The government initially planned to impose 10 percent VAT and
a 10 percent to 35 percent sales tax on luxury goods on Batam,
the country's largest industrial bonded zone, starting in April.
The plan has been met by widespread protests from both the
island's population and businesses. Over 60 foreign companies
have threatened to leave Batam, long regarded as a tax-free
haven, if the government implements the new tax policy.

Kalla said the staggered implementation meant the VAT and
luxury sales tax would be limited in the period from April to the
end of June to importing producers who sell their goods locally.

He said that starting in July, the tax policy would cover all
businesses selling their goods locally, including wholesalers and
retailers.

The government will also impose an import duty on consumer
goods, Kalla added.

Importers will be required to pay 30 percent of the import
duty in May, 60 percent in June and in full starting in July.

Kalla said the VAT and sales tax on luxury goods would not be
imposed on basic necessities, such as raw food commodities and
electricity.

He argued the two taxes were needed to increase the
government's revenue as well as in the interest of fairness for
other citizens and businesses outside of Batam.

"Batam has the highest per capita income of US$2,000 and good
infrastructure. So I think it's only fair for the people and
businesses here to pay taxes just as others do in less developed
regions," he said.

He stressed that Batam was a bonded zone, not a free trade
zone. "Bonded zones all over the world also pay these kind of
taxes."

Kalla played down newspaper reports of an exodus of businesses
from Batam if the taxes came into effect.

He said the island's major attractions for business were its
close location to Singapore, good infrastructure and cheap labor.

Batam has about 85 export-oriented companies, mostly
electronics manufacturers. The total number of corporate
taxpayers is about 1,800.

The imposition of the VAT, luxury sales tax and import duty is
expected to provide an additional Rp 121 billion in tax revenue
this year.

Separately, head of the local chamber of commerce and industry
Asman Abnur warned on Friday the new taxes would cause foreign
businesses to relocate their operations.

Asman urged the government to cancel the plan, noting that
foreign enterprises accounted for 75 percent of investment on the
island.

He said Batam contributed some Rp 1 trillion in tax revenue
per year, but added that an adverse response of businesses to the
new taxes could result in lowered revenue. (rei)