Government reintroduces tax holiday
Government reintroduces tax holiday
JAKARTA (JP): The government announced yesterday the
reintroduction of a tax holiday for newly operational companies
in certain industrial sectors after a break of 13 years,
exempting them from income tax for up to 10 years.
Companies operating outside Java and Bali will have two years
longer.
The Ministry of Finance declared in a statement that the tax
facility will include exemption from not only corporate income
tax but also income tax on dividends paid to their foreign-based
shareholders.
The tax facility, the most significant fiscal incentive
introduced in the last 13 years, is essential to boost the
country's economic growth, according to the ministry's statement.
The implementation of the tax holiday will start from the
completion of the construction of investment projects which,
according to the statement, should be ready for commercial
production five years, at the latest, after investors obtain
investment licenses from the Investment Coordinating Board or
other related government agencies.
If the construction of the investment projects can be
completed more quickly than in five years, the time difference
can be added to the term of the tax holiday given to them.
The ministry said that the industrial sectors which are
qualified to receive the tax holiday will be determined by
President Soeharto based on recommendations from the Team for
Assessment of Tax Facilities for Certain Industries.
The team is headed by coordinating Minister for Finance and
Economy Saleh Afiff, with its members including Minister/State
Secretary Moerdiono, Minister of Finance Mar'ie Muhammad and
Minister for Investment Sanyoto Sastrowardoyo.
The government first introduced a tax holiday in the late
1960s to attract foreign investors but annulled the measure
following the amendment of the tax laws in 1984.
For years economists and members of the House of
Representatives have called on the government to reintroduce the
tax holiday to support small-scale companies and to encourage
investments in remote areas, especially in the eastern parts of
the country.
The suggestions had, however, been repeatedly turned down on
the grounds that the new tax laws give no room to provide such
incentives.
Tax collection
Yesterday, the Ministry of Finance also announced changes in
the system for collecting the income tax on interest or discounts
acquired from bonds, and the establishment of a new team for the
privatization of state-owned companies.
The income tax on interest or discounts acquired from bonds
traded on stock exchanges are set at a final rate of 15 percent,
according to the ministry's statement.
Like bank deposits, the tax on interest or discounts obtained
from bonds is collected immediately upon the payment of the
interest to the bond holders.
Several institutions which are exempted from the 15 percent
tax include local banks and their branch offices overseas,
pension funds registered at the Ministry of Finance, mutual funds
registered at the Capital Market Supervisory Board, institutions
representing foreign countries, members of foreign diplomatic
corps, international institutions, and officials of foreign
institutions or other foreign organizations as stipulated in the
country's income tax law.
The rate of income tax on the interest or discounts of bonds
imposed on foreigners, excluding foreign business entities, are
set at 20 percent or at rates contained in bilateral tax
treaties.
The new team for the privatization of state-owned companies is
also headed by Minister Afiff.
Its members comprise Coordinating Minister for Production and
Distribution Hartarto, Minister Mar'ie, Minister Moerdiono, Bank
Indonesia Governor J. Soedradjad Djiwandono, and the government's
economic advisor Widjojo Nitisastro.
The previous team was headed by the secretary-general of the
Ministry of Finance. (hen)