Govt plans another tax-break facility for ailing industry

Govt plans another tax-break facility for ailing industry

Rendi A. Witular, The Jakarta Post, Jakarta

The government plans to introduce a tax-break facility worth
Rp 1 trillion (about US$113 million) to help ailing local
businesses cope with rising production costs and a gloomy export
market.

According to a draft of the planned policy, a copy of which
was made available to The Jakarta Post on Tuesday, the tax break
covers the revocation of value-added tax (VAT) on the import of
capital goods and raw materials for the agricultural, fisheries,
forestry and animal husbandry sectors.

Spokesman for the Ministry of Finance Maurin Sitorus said that
the ministry had been holding talks with the House of
Representatives to gain approval for the policy.

"There will be another stimulus package coming soon. We have
made the draft of the regulation and are now waiting for the
House's approval," he said.

Maurin said the House approval was needed as Law No. 18/2000
on VAT stipulated that any decision to impose or lift VAT should
be made in consultation with the House.

The planned tax-break facility was actually applied in 2001,
but the government dropped it in July last year on the grounds
that it had failed to boost new investment or improve the
performance of the business sector. At the time, the cash-
strapped government was also under pressure to collect higher tax
revenue to finance the state budget, heavily burdened with the
cost of the late 1990s bank bailout program.

But following strong criticism from the industrial sector over
the government's decision to raise electricity rates and fuel
prices for manufacturers and industries in January this year, the
government revised its stance by introducing the stimulus
package.

Businessmen have said that without the tax breaks, local
companies particularly those exporting their products would not
be able to compete with more efficient competitors from China and
other countries in a global economy suffering from a malaise.

In January, the government introduced its first package worth
Rp 6 trillion. The government at that time eliminated and cut
luxury tax on some 45 product items, mainly electronics, to help
manufacturers reduce their prices thus enabling people to buy
their products at a more affordable prices, and help discourage
the smuggling of overseas products.

Meanwhile, legislator Paskah Suzetta said that the House had
agreed in principle to the government's new policy.

He said that the House was scheduled to endorse it in May.

According to the draft of the new policy, the government would
lose some Rp 1 trillion in potential tax revenue by implementing
the policy.

But the government hopes to be able to collect other forms of
taxes with the expected increase in investment, industrial output
and exports as a result of the policy.

Elsewhere, the government also planned to exempt the
electricity sector from value-added tax.

Water companies will also enjoy a similar facility.

Eye box

Items to be covered by new tax-break facility

1. Capital goods in the form of machinery and factory equipment,

installed or uninstalled but not including spare parts
2. Animal feed for animal husbandry industry
3. Raw material for making animal feed
4. Seeds for agriculture, forestry, fisheries

and plantations
5. Clean water from water companies
6. Electricity