Govt plans tax stimulus to spur growth

Govt plans tax stimulus to spur growth

Rendi A. Witular, The Jakarta Post, Jakarta

The government is set to provide tax break facilities to the
business community in an effort to improve the business climate
and lure new investment, as well as to help support existing
firms to expand their businesses.

Director General of Taxation Hadi Purnomo said the Ministry of
Finance was finalizing regulations on the incentive facilities
and was hopeful they could be issued later this month.

"The facilities are needed to support the private sector to
expand their businesses, with an expectation that their robust
activity will spur higher economic growth and create more
employment," he said after a media conference on Monday.

Unfavorable taxation regulations have been cited as among the
main reasons for the reluctance of new investors, notably from
overseas, to come and invest here.

Hadi said the incentives would include a reduction in
withholding tax on dividends from the current 30 percent to 10
percent.

To help boost business operations, another ruling would also
be introduced to grant companies an extension on untaxable income
due to operational losses from the current five years to 10
years.

Another ruling would also allow companies to claim tax refunds
on assets depreciation within two years, instead of the current
five years.

Also, a reduction in income tax would be applied to companies
operating in under-developed regions. Under the ruling, firms can
allocate a minimum 30 percent of their profits for investment and
expansion, without having to pay for the expenditure tax at the
end of their annual fiscal year.

This particular incentive would not only cover under-developed
regions, Hadi said, but would also be expanded to a number of
business sectors deemed important for the country but that had
yet to be fully exploited, such as the fisheries and agriculture
sectors.

"The government will allow the BKPM (Investment Coordinating
Board) to decide which regions and business sectors will be
eligible for tax break facilities under the credit investment
allowance scheme," he said.

President Susilo Bambang Yudhoyono has repeatedly voiced the
need to reduce the country's huge unemployment rates by helping
the business community expand their businesses.

At present, there are about 45 million people who are either
entirely or partially unemployed.

Hadi also said that the directorate had decided to drop plans
to impose tax on profits obtained from bond-based mutual funds
following the delay in the revision of the tax laws, which was to
have been completed last year.

"We confirm that there will be no tax on profits obtained from
mutual funds, as was previously scheduled to go into effect this
year," he said.

The tax office had planned to tax bond-based mutual funds, in
part due to the government's need to collect as much revenue as
possible to help it finance the state budget deficit.

As of last year, the tax office had managed to reap Rp 238.9
trillion (US$256 billion) in revenue -- around Rp 300 billion
more than targeted.