Govt to introduce tax break facilities for exporters

The Jakarta Post, Jakarta

The government will introduce a second fiscal stimulus package for export-oriented industries to help lessen the impact of the recent utility price hikes, Minister of Trade and Industry Rini M. Soewandi said on Friday.

The first stimulus package, announced on Thursday, mostly benefits electronics manufacturers.

"We're now in discussions with the Directorate General of Taxation to determine the next stage of the package. We're now assessing what kind of efforts on our part can be made to jack up exports," Rini told reporters following a meeting with other senior economic ministers.

She declined to provide details, but said that the package would be in the form of tax incentives to help local exporters improve their competitiveness overseas.

The government is working hard to push exports this year in a bid to contribute more significantly to economic growth, which for the past two years had been mainly driven by domestic consumption.

But exporters have said that tax incentives were not what they needed most to boost competitiveness.

For instance, textile and shoe industries have centered their complaints on rampant illegal levies, the steady increases in utility prices, security problems and lingering labor disputes here.

Textile producers and shoe manufacturers are traditionally two of the country's top non-oil and gas export earners.

While illegal levies are causing high production costs and thus lessening their competitiveness, security and labor issues create fears among foreign buyers that local firms will not be able to meet delivery schedules, prompting them to seek alternative suppliers in other countries like China and Vietnam.

The first fiscal stimulus package, worth around Rp 6 trillion (US$660 million), is also aimed at helping businesses cope with the rising production costs triggered by the simultaneous increase in the price of fuel products, electricity and telephone charges.

The elimination and reduction of luxury tax on some 45 product items, mainly electronics, will also help reduce the cost of the products, which in turn would enable them to compete with cheaper smuggled products. It will also help increase domestic demand.

Many businessmen have long complained that electronics smuggled into the country were hurting their businesses at home.

Chairman of the Indonesian Electronics Association (Gabel) Lee Kang Hyun welcomed the stimulus package, saying that it would help curb smuggling activities and entice new investment in the local electronics sector.

"The new rule is very good," Lee told The Jakarta Post on Friday.

But the local soft drink industry is not happy with the policy because soft drinks were excluded from the luxury tax breaks. The industry has argued that there is no reason to impose luxury tax on soft drinks because the product should no longer be considered a luxury item.

Gendol Taruna, an executive at the Association of Soft Drink Manufacturers (ASRIM), said that they would continue to lobby the government to get tax breaks.

Some economists were doubtful the stimulus package would be able to curb smuggling and lure new investments.

"The goal of the policy is not clear," said Umar Juoro, an economist from the Center for Information and Development Studies (Cides).

He said that without serious efforts to curb illegal levies and corrupt practices, it would be hard to attract new investment.

Tax breaks under first stimulus package

Items to be exempt from luxury tax: 1. Packaged tea; 2. Cellular phones; 3. Wireless modems; 4. Wireless phones; 5. TVs measuring up to 21 inches; 6. Washing machines with a maximum capacity of six kilograms; 7. Refrigerators with a maximum capacity of 180 liters; 8. Air conditioners with a maximum of 1 PK; 9. VCRs, VCDs and DVDs with a retail or import price below Rp 1 million; 10. Audio players; 11. Telephone answering machines; 12. Magnetic band recording gadget in audio players; 13. Cameras with a retail or import price of up to Rp 500,000; 14. Hair dryers; 15. Hand dryers; 16. Toys; 17. Video games; 18. Lenses, mirrors, optic elements and camera equipment; 19. Single and double-eye binoculars, and optic telescopes; 20. Vacuum cleaners, electric floor polishers and garbage crushers; 21. Microphones, headphones, earphones, loudspeakers and amplifiers; 22. Steel sanitation goods, such as sinks; 23. Kitchen and dining utilities and decorative furniture

Items to benefit from a reduction in luxury tax:

1. Luxury tax on VCRs, VCDs and DVDs with a retail and import price above Rp 1 million will be reduced from 20 percent to 10 percent.

2. Luxury tax on radio cassette players with a retail and import price above Rp 1 million will be reduced from 20 percent to 10 percent.

3. Camera film, from 20 percent to 10 percent.

4. Cameras with a retail or import price above Rp 500,000, from 20 percent to 10 percent.

5. TVs measuring 21 inches to 42 inches, from 30 percent and 20 percent, respectively, to 10 percent.

6. TVs measuring above 43 inches, from 40 percent and 50 percent to 20 percent.

7. Washing machines with a six kilogram to 10 kilogram capacity, from 20 percent to 10 percent.

8. Other video cameras and digital cameras, from 20 percent to 10 percent.

9. Air conditioners with a capacity of between 1 PK and 2 PK, from 20 percent to 10 percent.

Source: Directorate General of Taxation