Govt to impose 5% tax on forex buying

JAKARTA (JP): The government will impose, starting Monday, a new 5 percent tax on foreign exchange purchases by individuals or legal entities, according to the Ministry of Finance.

A ministry spokesman, Agus Haryanto, announced yesterday that the new tax aimed to reduce speculation on foreign exchange, especially the U.S. dollar, which had resulted in the weakening of the rupiah.

"The imposition of a tax on foreign exchange purchases serves as an effort to contain the increasing foreign exchange speculation," Agus said.

The tax is classified as an income tax, Agus said, and as such the amount paid by a taxpayer when purchasing a foreign exchange could be credited to his annual tax return.

However, according to finance minister decree No. 185/KMK.04/1998, dated March 19 this year, the new tax would not be imposed on foreign exchange purchases by authorized money changers or commercial banks.

Other legal entities would have to pay the 5 percent tax when purchasing foreign currency barring those which do so to repay offshore debts or to finance imports.

An indebted company wanting a tax waiver when purchasing a foreign currency would have to enclose a confirmation letter from the central bank stating that it does have foreign debts.

And an importer, when buying foreign currency to finance imports, has to enclose a confirmation letter of its letter of credit from the issuing bank here to get a waiver.

Agus also announced yesterday the expansion of an income tax incentive for companies undertaking mergers, acquisitions and business expansions.

The facility basically allows corporations to use their book value in transferring assets during mergers, acquisitions and expansions.

So far, the government has given such a tax incentive to banks, financial institutions and companies wanting to conduct an initial public offering of shares.

The new finance ministry decree, No. 117/KMK.04/1998, dated Feb. 27, expands the facility to also cover insurance and reinsurance firms as well as publicly listed firms wanting to conduct a secondary offering of shares.

"But the use of book value in transferring assets must still obtain approval from the finance minister, through the director general of taxes," Agus said.

"This policy aims to encourage businesses to merge," he added.

Agus also announced yesterday a facility for banks to write off their bad debts. The facility is incorporated in finance ministry decree No. 130/KMK.04/1998, dated Feb. 27.

The facility allows banks to calculate their bad debts as part of their operating costs, and thus avoiding being taxed on the amount.

However, to qualify for such a facility, a bank must first include the bad debts, as losses, into its commercial financial report and transfer the debts to district courts or the state's bad debts settlement body.

A bank must also publicly announce the amount of its bad debts and the name of the debtors in a local publication and submit data on the bad debts, including the debtors' tax numbers and other related documents, to the director general of taxes. (rid)