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)