Government urged again to review shipping policy

Rendi A. Witular, The Jakarta Post, Jakarta

The Indonesian National Shipowners Association (INSA) has renewed calls for the government to review its shipping industry policy, warning that foreign shipping companies will entirely control the industry in the near future unless the policy is changed.

INSA chairman Barens Th. Saragih said over the weekend the government's policy severely damaged local shipping companies, so much so that they now account for a mere 5.4 percent of the shipment of goods into and out of the country. Foreign-owned ships transport the remaining 94.6 percent of exported and imported goods, which reach 350 million tons annually.

Barens said the unfavorable policy included excessive taxes imposed on the purchase of ships and the absence of a special credit for the purchase of ships.

"The current policy impedes the development of the local industry, as it leaves us unable to buy new ships or upgrade our ships. In order to reach its revenue targets, the government has created a policy that makes it too expensive for us to invest (in our businesses)," Barens told The Jakarta Post.

According to Barens, local shipping companies currently only have 37 vessels to serve international routes. While for domestic destinations, local companies only have about 250 vessels in operation.

Under the current tax policy, a shipping company has to pay a 47.5 percent tax -- a 10 percent value added tax and a 37.5 percent income tax -- when it purchases an imported ship.

The tax policy was introduced in the early 1990s to encourage local companies to buy ships from local shipbuilders, in order to develop the country's shipbuilding industry.

However, Barens said locally built ships cost 30 percent higher than imported ones.

One local shipping company, PT Global Putra International Group, shared Barens' view, saying it was too expensive to purchase ships from local companies. The company said it preferred to lease vessels from foreign companies.

"The investment is just too high, especially with the current policy," company finance manager Eddy Sanusi told the Post.

Global Putra is a local shipping and sea freight forwarding company. It has established joint ventures with two Chinese state-owned shipping companies, China Ocean Shipping Group Company (Cosco) in 1994 and China Shipping Group in 1998.

Barens estimated the country lost US$11 billion per year in potential revenue because of the weakness of the country's shipping industry.

He urged the government to treat local shipping companies the same way neighboring countries handled their companies, in order to increase the industry's competitiveness.

"Singapore does not impose any taxes for the purchase of new ships from aboard, and they also gives a 10-year tax holiday for new shipping companies. And Malaysia provides low-interest loans for their shipping companies to buy new ships," said Barens.

In April this year, INSA proposed to the government the establishment of the Maritime Recovery Fund to revitalize the industry.

Foreign lenders from Japan, Germany and the U.S. expressed interest in providing soft loans to the fund, but wanted a government guarantee before investing their money.

However, the government refused to give such a guarantee.

Currently, local shipping companies depend on the inter- island, or cabotage market for their survival.

Cabotage refers to the point-to-point delivery of goods inside the territory of Indonesia.

This market is closed to foreign shipping companies until 2020, when the World Trade Organization will liberalize national boundaries for the shipping industry and allow foreign ships to serve any national routes.

Barens said the government should create a policy to strengthen the country's shipping industry, so when the WTO liberalizes the sector the local industry will be prepared to compete both at home and abroad.

"If the government does not change its policy, when the cabotage market is liberalized local companies will never become players, but only spectators while all our goods are delivered by foreigners," Barens said.