Govt to issue new tax incentives regulation

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)