Government forms team to review new tax policy on bonds

JAKARTA (JP): The government will soon set up a joint team to review a recently issued income tax policy on the transaction of bonds, according to an Surabaya Stock Exchange (SSX) executive.

SSX president Anton Natakoesoemah said the joint team would comprise of officials from the capital market's self-regulatory organizations (SRO), the directorate general of taxes, and bond market players.

The SRO includes among others the Jakarta Stock Exchange (JSX), the Capital Market Supervisory Agency (Bapepam), and the SSX.

"There is a possibility that the government will revise its tax policy if we can come up with sufficient reasons," Anton told reporters on the sidelines of a product launching by securities firms PT Trimegah Securities and Bank Niaga.

He said the decision to form the joint team was a result of a meeting last week between the SSX, bonds trading securities firms, and the directorate general of tax.

"We're expecting the joint team to start working by next week," he added.

According to him, the new tax policy on bonds is a disincentive to bond investors, trading at local bond markets.

Government Regulation No. 139/2000 on income tax on revenue from bonds was issued on Dec 21, and has been effective since Jan. 1.

Under article 3 of the Regulation, domestic and foreign-based taxpayers must pay income tax of 15 percent and 20 percent respectively on interest earnings from bonds.

The previous regulation imposed only a single rate of 15 percent on both domestic and foreign-based taxpayers.

But Anton warned of the second section of article 3, which he said runs a danger of double taxing bond interest revenues.

This section states that the amount of income tax to be charged on revenues from capital gains, interest and or discounts obtained by the owner of a bond at the time of a transaction on the stock exchange is 0.03 percent of the gross transaction value.

It implied that bond owners must pay another 0.03 percent income tax from bond interest, on top of the 15 or 20 percent in the first section.

"It (the new tax policy) is obviously double taxing," Anton went on saying.

He said this double taxing would hamper local bond trading, which is now dominated by the SSX because the policy would also encourage investors to carry out bond trading outside the market to avoid tax payment.

Bonds transaction can occur without being registered because bonds do not bear the names of their holders.

Bapepam chief Herwidayatmo said it was too early to predict whether the directorate general would revise its new tax regulation on bonds.

"We have forwarded our appeal and the fact that we're going to sit together and discuss it (the new tax policy) is already progress," he said.

Trimegah president Avi Dwipayana expressed similar concerns, saying that people would become more reluctant to invest in bonds.

"The government should offer tax incentives to stimulate the trading of bonds here," he said.

Trimegah's newly launched service allows its mutual fund clients to use Bank Niaga's ATM outlets to conduct transactions. (bkm)