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).