Foreign firms face tax probe

The Jakarta Post, Jakarta

The Directorate General of Taxation is investigating some 250 foreign investment companies that claim to have been operating in the red since 1997 and cannot pay income tax.

M. Said, a senior official at the tax office, said the investigation was focusing on the financial reports of the companies to determine whether they were telling the truth.

"So far, many foreign investment companies claim they've been suffering (financial) losses even before the start of the (1997) economic crisis. But they can still survive, which is uncommon. And so we want to make sure by investigating their financial reports," he said on Tuesday.

Said declined to provide details about the investigation.

It is not clear whether this is part of the random checks on taxpayers.

He said there were at least 4,000 foreign investment companies operating in the country.

Reports earlier said that 70 percent of the foreign investment companies could not pay income tax in 2001 because they had lost money. According to the law, companies are only obliged to pay income tax if they make a profit.

The reports did not say why the firms lost money or in which business sectors they operated.

Director General of Taxation Hadi Purnomo said on Tuesday that the financial losses were mainly linked to foreign exchange losses. He also declined to provide details.

The rupiah plunged to record lows during the 1997-1998 crisis, causing many companies to suffer from foreign exchange losses, particularly those relying on imported raw materials.

But experts have said that various uncertainties at home, such as labor conflicts and security problem, and the global economic slowdown were negatively affecting the business sector, particularly export-oriented companies.

The government is under pressure to collect more taxes to help finance the state budget, which is heavily burdened by the cost of the late 1999s bank bailout program.

The government hopes to collect more than Rp 219.6 trillion in taxes this year and some 260.8 trillion in 2003.