The government needs to include fiscal incentives -- in the form of a tax holiday and tax amnesty -- and simplify its taxation system in the proposed tax laws in a bid to attract foreign direct investments, a former senior minister has said.
Former finance minister Fuad Bawazier said Tuesday in Jakarta that such a breakthrough was needed so that the tax law would no longer solely serve as an instrument to gain state revenue but also to promote investment.
A tax holiday is a policy that exempts certain investors from paying taxes or lowers the rates that they pay for a given period of time. Meanwhile, a tax amnesty is a one-year reprieve for investors who do not have taxpayer identification numbers yet.
The final draft revisions of three 2000 laws on general taxation arrangements and procedures, on income tax and on value-added tax (VAT) and luxury sales tax were submitted to the House of Representatives on June 1 for deliberation, and are expected to be passed by the end of this year.
"Offering tax facilities, such as a tax holiday and tax amnesty, in the new bills is important to attract investors, thereby increasing the inflow of foreign exchange," he said.
He reiterated the importance of providing such facilities, considering that neighboring countries had adopted such incentives.
"Many people think that these incentives will reduce the tax revenue that the government can earn, but that is wrong," he said, "For example with a tax holiday, the government can earn more from employees' income tax."
With regard to the tax amnesty, he said, the government should consider the future benefits.
Meanwhile, Indonesian Chamber of Commerce and Industry (Kadin) taxation committee chief Prijohandojo Kristanto said that the government should consider providing tax breaks to boost investment.
In adding to what Prijohandoko said, Fuad suggested the government should prioritize such incentives for investors processing Indonesia's 10 prime commodities, namely textile products, electronics, automotive components, shoes, furniture, cacao, coffee, palm oil, rubber and shrimp.
Besides that, Fuad also urged the government to simplify its complicated tax payment system, which is known for its lack of transparency.
"I suggest that value-added taxation be limited to factories and their main distributors, while their downstream chains would be exempted. That will make it easy to monitor," he said. "For income tax, the government should expand its services by allowing taxpayers to pay through banks."
In response to this, Finance Minister Sri Mulyani Indrawati, said in her keynote speech in a seminar, that the government was still facing a lot of challenges in reforming the tax system, including administration, procedures and services.
"The government is considering lowering tax rates, realizing that amid tight regional competition, we cannot maintain an exclusive tax system. Indonesia has to compete directly with other countries, such as Vietnam and Thailand, in bringing inventors in," she said.
Separately, Minister of Trade Fahmi Idris said that the government was considering including the tax incentives in the proposed tax bill so as to make the country a more attractive destination for foreign investors.
"Incentives for investors will be included in the tax bill, not in the proposed investment law which is also being deliberated at the House," he said during a hearing with Commission VI in charge of trade, industry and investment.
He noted that such tax facilities were needed to enable Indonesia to compete with other countries in attracting foreign direct investment.
In Malaysia investors are given a five to 10 year tax holiday, Thailand three to eight years, and Vietnam two to four years.
Fahmi said that the investment bill would ease investment licensing procedures for businesspeople who invested in rural and underdeveloped areas. (09/08)
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