Govt delays tax plans for Batam Island
Govt delays tax plans for Batam Island
Dadan Wijaksana, The Jakarta Post, Jakarta
Minister of Finance Boediono said on Monday the government had
delayed plans to impose value-added tax (VAT) and luxury tax on
Batam island in Riau province, pending the completion of a bill
that would allow the industrial island to become a free trade
zone.
"This has something to do with the bill. It has yet to be
completed at the moment, so we're extending the period of tax
exemptions on Batam," he was quoted by Detik.com online as
saying.
The plan to tax Batam island was drawn up in 1998 by the
government, under pressure from the International Monetary Fund,
in a bid to collect more tax revenue to help finance the state
budget. But the plan has been delayed a couple of times due, in
part, to protest from businesses on the island. Based on the last
deadline, the VAT and luxury tax plans were supposed to be
implemented on July 1.
This means that for the time being, Batam island will continue
to enjoy tax incentives.
Batam, located in the Riau archipelago, some 20 kilometers
south of Singapore, was initially declared an industrial bonded
zone in 1978 to attract foreign investment and bolster export
competitiveness.
Since then, Batam has become the country's main center of
industry, where 70 percent of the economic growth is contributed
by an export-oriented manufacturing sector, with 100 percent of
its products exported.
The value of exported goods from the island last year totaled
US$ 5.7 billion, or some 14 percent of the country's total non-
oil and gas export revenue.
However, the island has technically acted as a free trade zone
for 10 years to 15 years, 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.
The finance ministry then moved to impose VAT and luxury tax
in Batam.
But the plans drew protests from the Minister of Industry and
Trade, saying that the reimposition of such taxes would likely
scare investors away.
The ministry then called on the finance ministry to extend the
tax facilities, waiting for the enactment of the bill, which
would give the island free trade zone (FTZ) status.
FTZ status would enable companies on Batam to import goods
without paying customs duties and taxes, pending their eventual
processing, transshipment, or reexport.