Govt urged to trim bureaucracy, revise tax system

Govt urged to trim bureaucracy, revise tax system

Dadan Wijaksana, The Jakarta Post, Jakarta

Reducing the cumbersome and costly bureaucracy and fixing the
current tax system should be at the top of the list of the
government's economic agenda this year if it wants to reduce
existing snags faced by the business sector, according to an
economist.

Chatib Basri, an economist at the University of Indonesia's
Institute for Economics and Social Research (LPEM-UI), told The
Jakarta Post on Tuesday that such actions would have an immediate
impact on the business sector.

"What's feasible would be to fix our tax system, for example
revoking luxury taxes on certain industries, and eliminating
illegal levies.

"The government would have no problems implementing it, and
this would improve the competitiveness of our industries," Chatib
said.

He was commenting on an earlier statement by Coordinating
Minister for the Economy Dorodjatun Kuntjoro-Jakti that the
government would give greater attention to the micro economic
sector this year.

Speaking after a Cabinet meeting on Monday, Dorodjatun said
that the government had been concentrating on trying to improve
macro-economic conditions last year.

Indeed, macro-economic indicators in 2002 were relatively
stable such as inflation, the exchange rate of the rupiah against
the U.S. dollar, and the low interest rate environment.

According to an official estimate by the finance ministry, the
rupiah stayed at Rp 9,300 per U.S. dollar on average during 2002,
not far from the target of 9,000 set out under the 2002 state
budget, while on-year inflation stood at 10.03 percent from a
target of 9 percent.

The government has been boasting about the positive macro-
economic development, trying to hide the fact that problems in
the micro economic sector are getting worse as indicated by
falling investments, and slowing export performance.

For instance, foreign direct investment (FDI) approvals
plummeted by 35 percent to US$9.7 billion last year from $15.06
billion in 2001, the Investment Coordinating Board (BKPM) said.

A grimmer picture is given by the 57 percent drop in domestic
investment approvals that fell to Rp 25.26 trillion from Rp 58.62
trillion.

This was due to various problems ranging from labor conflicts
and legal uncertainty to poor implementation of the regional
autonomy policy, which has often caused disputes between
investors and local governments.

Businessmen have long been demanding the government re-
formulate its tax system as it is creating too much burden on the
business sector which has yet to recover from the impact of the
late 1990s economic crisis.

Some businesses, for instance, have asked the government to
drop the luxury tax to encourage new investment.

Even Minister of Trade and Industry Rini M. Soewandi
previously proposed to the finance ministry that it drop the
luxury tax on some electronics and automotive products.

Rini also called for the scrapping of the 10 percent value-
added tax (VAT) on some agricultural products to help boost the
country's export performance.

Director general of taxation Hadi Purnomo said late last year
his office was reviewing its VAT and luxury tax policies in a bid
to help promote investment in the country.

Based on Dorodjatun's statement, the government wants to be
more aggressive in boosting the performance of exports and
investments, two important ingredients to achieve a higher
economic growth.

Aside from a revision to the taxation system, the government
has pledged to address reform in the customs service, legal
certainty, security, smuggling, labor-related problems and
upgrading facilities and infrastructure.

Chatib saw the government's move as timely, saying it would
help it deal with current objections from domestic businesses,
which could well lead to massive relocations of their business
operations to countries deemed more competitive, such as China,
Thailand, Malaysia and Vietnam.

The recent decision of electronics producer Sony to close its
operations in the country was the latest manifestation of how
uncompetitive it is to operate a business in Indonesia.

"In this case, the government's move (to improve the business
climate) is a must, otherwise soon our business operations will
all be relocated to other countries," Chatib said.