House discussing Batam FTZ status
Adianto P. Simamora and Fadli, The Jakarta Post, Jakarta/Batam
The House of Representatives is currently drafting a law that would provide a long-awaited legal basis for Batam Island to obtain free trade zone (FTZ) status and put an end to the confusion faced by investors doing business on the industrial island.
Under the proposed draft, Batam will be granted FTZ status or designation as a tax and duty-free industrial zone for 70 years.
The daily management of the island will also be taken over by a new agency called the Batam Authority Body, which holds the power to issue business licenses.
"We hope the bill (on the Batam status) can be passed into law in March, next year," said legislator Irmadi Lubis of the House of Representatives Commission V overseeing industry and trade, which is in charge of drafting the law.
The House is using its "initiative rights" to draft the law, after the government failed last year to complete drafting the law on the status of Batam.
"The law is crucial to reviving investor confidence on the island," Irmadi said last week.
An FTZ status would enable companies on Batam, located some 20 kilometers from Singapore and is home to hundreds of Singaporean manufacturers and other foreign firms, to import goods without paying customs duties and taxes, pending their eventual processing, transshipment or reexportation.
Batam was initially declared an industrial bonded zone in 1978 in order to attract foreign investment and bolster export competitiveness. The status was later given to the nearby islands of Rempang and Galang, becoming a total bonded area of 715 square kilometers.
However, the islands for many years have technically acted as an FTZ, and tax incentives originally intended for export- oriented industries have also been enjoyed by all residents of Batam and Indonesian companies there providing products and services not destined for export.
This prompted the government in 1998 to reimpose the value added tax (VAT) on Batam. The cash-strapped government also wanted to raise revenue from the tax. But after strong protest from foreign investors, the VAT policy was postponed. The confusion, nevertheless, had scared many foreign investors away.
The new regional autonomy policy launched in 1999, which gives greater administrative power to local governments, had also created confusion among foreign investors. The newly-empowered local government, for instance, had required foreign companies operating on Batam to also obtain permits from the administration in addition to the license already obtained from the Batam Industrial Development Body (BIDA).
But this kind of confusion will end if the new bill on the Batam FTZ status is passed into law.
According to the draft law, a special board to be led by the Coordinating Minister for Economic Affairs, Dr. Dorodjatun Kuntjoro-Jakti, will be in charge of designing policies for Batam. The board will consist of several ministers, officials of the Batam administration and the Riau province.
Meanwhile, in order to oversee the daily management and monitoring of the development on Batam, the board will designate an interim Batam Authority Body. This new commission will take over the responsibilities of BIDA and have the authority to issue business permits on the island.
This clarification on who is in charge of the controlling authority on the island should give a peace of mind to investors.
"We had received many complaints from existing investors in Batam about the overlapping role of BIDA and the local government because of the unclear status of the island," Irmadi said.
Although Irmadi was optimistic that the problem concerning the Batam status would be resolved next year, many doubts remained due to strong opposition from the local administration. The central government, which would lose tax revenue by applying the FTZ status on Batam, may also be reluctant to hastily give approval to the new law.
"I prefer Batam remain as a bonded zone rather than FTZ because it (FTZ) will void the authority of the local government," Nyat Kadir, Batam's mayor told The Post.
Nyat said that the FTZ status was against the law on regional autonomy.
Key points of the proposed Batam FTZ status
1. FTZ status will be valid for 70 years.
2. The government will set up Batam Authority Commission to oversee daily management of Batam Island.
3. Batam Authority Commission will also have the authority to issue business permits and other licenses needed by investors.
4. All licenses previously issued by Batam Industrial Authority (BIDA) will remain valid.
5. All properties currently owned by BIDA will be transferred to Batam Authority Commission.