Govt to impose 5% tax on forex buying

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)