Govt moves ahead with FTZ bill, says Minister

Govt moves ahead with FTZ bill, says Minister

Fadli and Dadan Wijaksana, The Jakarta Post, Jakarta/Batam

The government remains committed to the deliberation of a bill
to grant Batam free trade zone (FTZ) status, despite the recent
imposition of a decree taxing certain products on the industrial
island, a top economic minister said.

The implementation of a value added tax (VAT) and a luxury
goods tax on products designed for domestic consumption would not
affect the ongoing deliberation at the House of Representatives
on the FTZ bill, Coordinating Minister for Economic Affairs
Dorodjatun Kuntjoro-Jakti said on Monday.

"But, we have to understand that this is a legislative process
in which we have to cooperate with lawmakers. So, definitely it
will take some time (to complete the deliberations)," said
Dorodjatun.

He was responding to questions on the impacts of the issuance
of the presidential decree on Batam taxes relative to the Batam
FTZ bill, which the government and the House have been discussing
for over four months.

The presidential decree stipulates that, effective Jan. 1,
cigarette, liquor and automotive products will be subject to VAT
as well as a luxury tax. Electronic products will follow starting
in March.

The tax, first proposed by the Ministry of Finance in 1998, is
imposed only on the products designed for domestic the market and
not for exports. Analysts say this is contradictory to an FTZ
status which will abolish automatically the need to apply
differential tax treatment to domestic and export transactions.

When asked whether the government would revoke the
presidential decree once Batam is granted FTZ status, Dorodjatun
did not provide a clear-cut answer.

"In principle, the taxes are being imposed in every part of
the country no matter where you live. For an area holding an FTZ
status, such a ruling would still be applied as well, although
adjustments will be made," he said, without elaborating.

The implementation of the two taxes is to correct a misguided
tax policy measure imposed on the island, since it was declared
an industrial bonded zone in 1978 -- which allows export-oriented
firms to bring in capital goods and raw materials without paying
import duties, VAT or other indirect taxes normally imposed on
trading transactions in other parts of the country.

However, over time, the tax exemption policy has been enjoyed
not only by export-related products, but also those for domestic
sales.

This prompted the finance ministry six years ago to reimpose
the VAT on Batam to raise revenues.

Batam-based companies have voiced strong opposition to the new
ruling, saying it would only create uncertainty among investors
and shatter their appetite to invest in the island.

David Octarevia, head of the island's business association
which groups together dozens of businesses operating there, was
one of the strong opponents to the new ruling.

"This will badly hurt not only business people, but also the
whole community. We're considering asking the Constitutional
Court to annul the decree," he said.

"It's hard to accept this regulation. We have to make plenty
of adjustments because of this," echoed Ismeth Abdullah, chairman
of Batam Industrial Development Authority (BIDA).