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.