Govt to issue new tax incentives regulation

JAKARTA (JP): The government is to issue a new regulation next week on special tax facilities for companies operating in the country, State Minister of Investment Hamzah Haz said yesterday.

"The new ruling will be issued hopefully by next week, and will come into effect in September," Hamzah, who is also the chairman of the Investment Coordinating Board, told reporters after a lunch discussion.

The new policy would set criteria for companies to become entitled to tax incentives according to their type of business, location and technology, he said.

It would be an improvement on the previous measures, as it would provide clearer and more transparent criteria for the recipients of the facilities, he said.

"The old ruling was criticized because it was open to abuses of practices of corruption, collusion and nepotism."

Hamzah said the government would not lift the tax holiday facilities as part of the incentives because the former boosted inward investment.

Inward investment approvals have dropped significantly this quarter. The current situation resembles that of the political and economic upheavals of the late 1960s, he said.

Foreign and local investment approvals have dropped sharply since the riots in Jakarta and several other cities in May that led to the resignation of president Soeharto.

Tax breaks

Hamzah said the government would also continue the tax breaks granted to six companies last year, as this was decided according to the policy of the government of the time.

"The companies have begun operating (under the new rules), so we will not cancel or review the facilities," he said.

Last year, the government granted income tax holidays for between five and 10 years to six companies for their pioneering roles in their respective fields.

The companies are the two listed wings of textile producer Texmaco Group, PT Polysindo Eka Perkasa and PT Texmaco Perkasa Engineering; PT Smelting Copper Co.; PT Trans Pacific Petrochemical Indotama; PT Seagate Technology Sumatra; and PT Kiani Kertas.

The pulp and paper giant, Kiani, is controlled by Soeharto's long-term pal Mohamad "Bob" Hasan, while Trans-Pacific is controlled by a politically well-connected businessman Hashim Djojohadikusumo.

Since Hamzah's appointment to his portfolio, the government has deregulated procedures and rules for foreign and local investment approvals.

This includes cutting the time it takes to process and issue approvals to 10 days from 42 days.

Under the new regulation, potential foreign investors' proposals worth up to US$100 million can be approved directly by the investment minister, while anything above that value has to be passed by the president.

Hamzah said yesterday foreign investment approvals in the past three and a half months totaled $3.3 billion. The amount represented a decrease from the same period last year, he said, but did not say how much the decrease was.

Foreign investment approvals in the January 1 to July 15 period this year dropped 47.5 percent year-on-year to $8.5 billion, while domestic investment approvals dropped 59 percent to Rp 30.9 trillion ($2.68 billion) in the same period. (das)