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)