House approves tax-break facility
House approves tax-break facility
Dadan Wijaksana, The Jakarta Post, Jakarta
The House of Representatives (DPR) approved on Tuesday a
government proposal to waive the 10 percent value added tax (VAT)
on the import of certain capital goods and raw materials by
several industries.
The new tax-break facility would allow the revocation of VAT
on the import of capital goods such as machinery and factory
equipment, as well as raw materials for the agricultural,
fishery, forestry and animal husbandry sectors. The ruling, which
will be in the form of a presidential regulation, is expected to
take effect in July this year at the latest.
Law No. 18/2000 on VAT stipulated that any decision to impose
or lift VAT should be made in consultation with the House.
DPR approval was given recently during a meeting between
Minister of Finance Boediono and House Commission IX on state
budget and finance.
Boediono welcomed the decision, saying that it would help
improve domestic businesses, thus enabling them to increase their
output to meet demands from local and export markets. The related
sectors would also become more attractive for investment.
All this will bring about plenty of revenue for the
government, more than enough to offset the estimated Rp 1
trillion of potential loss in tax collection, as a result of the
tax-break policy, he added.
Business groups have long lobbied the government for such a
stimulus package, saying that domestic companies, especially the
export-oriented ones, were facing difficulties in competing head-
on in the international market with competitors from China and
other countries, which are regarded as more efficient.
The government's decision to raise electricity and fuel prices
for manufacturers and industries this year was also seen as an
additional factor creating heavy burdens on domestic businesses.
The new tax-break facility is the second fiscal-stimulus
measure introduced by the government this year. The first, worth
around Rp 6 trillion, was issued in January, in which the luxury
tax on 45 products -- mainly electronics -- was eliminated.
While this could make manufacturers lower their prices, making
them more affordable for people, it was also aimed at helping
discourage rampant smuggling practices.
The VAT facility was actually applied in 2001, but was revoked
last year due to the industries' failure to improve their
performance and the government's need for extra cash to help
finance the cash-strapped state budget.
Director General for Taxation Hadi Purnomo said that tax
collection as of April stood at Rp 65.1 trillion, of which Rp
20.3 trillion came from VAT.
The state budget has targeted the directorate to rake in some
Rp 214 trillion in tax revenues this year.
Items to enjoy the new tax-break facility:
1. Capital goods in the form of machinery and factory equipment,
installed or uninstalled but not including spare parts
2. Animal feed for animal husbandry businesses
3. Raw material for making animal feed
4. Seeds for agriculture, forestry, fisheries and plantations
5. Clean water from water companies
6. Electricity.