Govt about to issue new ruling on tax break criteria

JAKARTA (JP): A presidential decree spelling out criteria for tax breaks for particular investments will be released this month and take effect in January, State Minister of Investment Hamzah Haz said on Monday.

He said prompt issuance of the decree was important because many prospective foreign investors were awaiting the ruling and competition was intense in the region.

"The government has to immediately issue the tax holiday criteria because of the stiff competition in the Southeast Asian region to attract foreign investment," he told reporters after meeting President B.J. Habibie.

The decree will outline general criteria and the specific or technical criteria for projects to qualify for the facility, Hamzah said.

He explained that included in the general criteria were employment opportunities and locational aspects of an investment, while specific criteria would include export and import substitution benefits.

Tax breaks for investments outside Java would last for five years, while tax facilities for projects in Java and Bali would be for three-year durations.

Hamzah also said that approved foreign direct investment -- new projects, expansion, and transfer of status -- in the country dropped by 60.65 percent during this year's January-Dec. 15 period to US$13.31 billion from $33.83 billion in the same period in 1997.

He added that the number of foreign direct investment projects rose to 979 during the period from 785 in the same period last year.

The government approved 308 domestic investment projects worth Rp 59.41 trillion ($7.9 billion), compared to 717 projects worth Rp 119.87 trillion last year, Hamzah said.

Investments

The inflow of foreign investments is seen as one of the key factors to help lift the country out of its economic crisis.

The ongoing social unrest is a major discouragement to foreign investment, especially as Thailand and South Korea are considered better choices due to their stability and quickened pace of economic recovery.

Hamzah explained that the government had to cancel tax breaks given to 10 companies following the public uproar over allegations that similar facilities for six companies were based on collusion and nepotism.

Among the companies granted special tax breaks in 1997 were PT Kiani Kertas, PT Smelting Copper Co., PT Trans Pacific Petrochemical Indotama, PT Seagate Technology Sumatra, PT Polysindo Eka Perkasa and PT Texmaco Perkasa Engineering.

Pulp and paper giant Kiani, controlled by former president Soeharto's close associate Mohamad "Bob" Hasan, was given a 10- year income tax exemption because of its key role in developing East Kalimantan where the company is located.

Trans-Pacific, controlled by well-connected businessman Hashim Djojohadikusumo, received six-year tax break because it was the country's first integrated olefin and aromatic center.

Seagate received a nine-year tax holiday because of its pioneering role in producing electronic components.

Textile-related industries Polysindo and Texmaco, controlled by the Texmaco Group, were exempted from income taxes for eight years and five years respectively because of their technology Govt about to issue new ruling on tax break criteriainnovation and export-oriented operations. (rei/prb)