Exporters need faster process for VAT refund

Exporters need faster process for VAT refund

JAKARTA (JP): Procedures for the refund of value added tax
(VAT) paid by export-oriented companies need to be reformed in
order to promote the development of local trading companies, says
an analyst of the World Bank.

Surinder Malik said that reform may guarantee speedy refunds
of VAT which has been paid on domestic inputs used for the
production of export goods or paid on export products.

Exporters are exempt from duties and VAT on materials imported
for the production of export goods. Because they are required to
pay duties and VAT on materials upon their arrival -- if they are
not processed in a bonded zone -- they are entitled to a refund
of the duties and VAT which have been paid.

"Otherwise, it would be difficult to achieve backward linkages
and promote the development of local trading companies," Malik
told a World Bank-sponsored seminar held here last week.

The seminar, with the theme of Building on Success: Maximizing
the Gains from Deregulation, featured a dozen economists from
local and foreign institutions, such as Akihiko Nishio of the
World Bank and Mari Pangestu of Indonesia's Centre for Strategic
and International Studies.

Speaking about the government's duty and indirect tax
facilities, Malik said some of the facilities often fail to
perform as expected.

Many exporters, for example, consider the VAT refund
administration ineffective because of the inability to claim
refunds of VAT on inputs purchased domestically from suppliers
for indirect exporters.

"This discourages the development of backward linkages," he
said, citing that an Indonesian synthetic leather manufacturing
firm, in order to avoid VAT payments, preferred to export its
products to Singapore rather than supply local shoe exporters.

Import

In return, he said, shoe manufacturers prefer to import
synthetic leather from Singapore in order to also avoid the costs
associated with VAT.

Malik said that similarly, some firms in the electronics
sector import components from Singapore that are made in
Indonesia, due to the difficulties in the administration of
incentives for indirect exporters.

"Under such a system, a strong synergy between direct and
indirect exporters cannot be expected," he said, adding that the
system also discourages the activities of trading companies and
that it is a major reason why every manufacturer prefers to
export their products themselves.

The refund of VAT on domestic inputs used for the production
of export goods is one of the export facilities introduced by the
government with the aim of promoting exports. The facilities are
administered by the Export Facility and Financial Data Analysis
Agency. The other export facilities include the exemption and
refund of duties on imported materials used for the production of
export goods. In addition, all investments approved by the
Investment Coordinating Board are also exempt from duties and
indirect taxes on machinery, equipment and intermediary inputs
for the first two years of production.

Concerning the duty exemption facility, he said that a common
bonded manufacturing warehouse (CBMW) system needs to be
introduced to facilitate small direct and indirect exporters'
access to the duty exemption facility.

"CBMW licenses should be issued for private enterprises or
associations," he said.(hen)