Govt prepares ruling on bad loan write-offs

JAKARTA (JP): Tax Director General Fuad Bawazier said here a new government regulation, expected later this year, would tackle some controversial issues regarding the mandatory write-off of bad loans by commercial banks.

"Currently, we, the central bank, the ministry of finance and other related institutions are discussing various aspects of the write-off scheme and hopefully we can issue a special regulation before the end of this year," Fuad told the press after a hearing with the Budgetary Commission of the House of Representatives.

He said the problem of taxation on the borrower's side is the hardest part in the implementation of the mandatory write-off as it is related to bank secrecy.

He said that bad loans written off by banks are categorized as income for the debtor and are thus subject to income tax. But due to bank secrecy, banks are not allowed to disclose the name of the borrower to the tax office.

The tax directorate general has insisted that banks disclose the names of debtors whose bad loans are written off so that the income tax obligation of the debtor can be assessed properly.

The central bank, Bank Indonesia, recently announced that it would go ahead with its mandatory write-off policy for banks even though implementation will require the disclosure of the names of debtors to the tax office.

Bad loans in the banking industry were Rp 9.02 trillion (US$3.8 billion) or 3.2 percent of total bank credits, as of June.

Fuad said that his office and the central bank will reach an "optimal solution" so that the mandatory write-off of bad loans can be implemented properly.

"This bank secrecy is a delicate issue. We cannot solve the problem emotionally. That would be counter-productive," he said. (13)