Government may back down on Batam status plan

Tantri Yuliandini, The Jakarta Post, Jakarta

The government may back down on its plan to pronounce Batam and its surrounding islands as a free trade area next year as pressure mounts to collect more domestic tax revenue for the 2002 state budget.

A source from the Ministry of Finance told The Jakarta Post on Wednesday that the government has three alternatives with regard to Batam.

One option involves maintaining the area as a bonded zone, according to the 1995 law on tax and customs. The second involves proclaiming only Batam island as free trade zone, while the third alternative would see the Batam-Rempang-Galang (Barelang) areas become a free trade zone.

"The government seems to be leaning toward retaining the bonded zone alternative," he told the Post, adding that the matter was still being discussed in Cabinet meetings.

Separately, Director-General of Taxation Hadi Poernomo said that the 2002 tax ratio of 13.03 percent agreed to by the House of Representatives on Tuesday has also taken into account value added tax (VAT) contributions from Batam.

He said that VAT contributions from Batam would amount to approximately Rp 322 billion (about US$32.2 million) within the Rp 184.7 trillion tax revenue estimate for the 2002 state budget.

Free trade area status would enable companies on Batam to import goods without paying customs duties and taxes, pending their eventual processing, transshipment or re-exportation.

Batam was initially declared an industrial bonded zone in 1978 to attract foreign investment and bolster export competitiveness. The same status was later given to the nearby islands of Rempang and Galang, forming a total bonded area of 715 square kilometers.

However, the islands have technically acted as a free trade zone since 10 to 15 years ago, and tax incentives originally intended for industry have also been enjoyed by all residents of Batam, including Indonesian companies there providing products and services not destined for export. This freedom has led to resentment among companies based outside the island.

Earlier, Batam Industrial Development Authority (BIDA) chairman Ismeth Abdullah said that the government was preparing a new law to implement free trade area status for Batam and that it was expected to be finalized by the end of the year.