Int'l business lobbies slam tax office policy

Rendi A. Witular and Apriadi Gunawan, The Jakarta Post, Jakarta/Medan

International business lobby groups criticized on Wednesday the latest move by the Directorate General of Taxation to send to prison businessmen including foreign expatriates who fail to settle tax arrears.

Chairman of the International Business Chambers Peter G. Fanning expressed concern that the move would further undermine the country's investment image.

"It will not do the image of Indonesia any good... Bad news travels much faster than good news. If people avoid tax, there are ways of bringing them to court without using the "17th century" solution," said Fanning, referring to the detention policy.

He added, however, that the move might have resulted from the tax office's frustration with the country's weak legal system in making sure people pay tax.

He explained that businessmen were aware that the tax office had been under pressure to raise funds to finance the state budget, but the latest move of sending people to prison without prior trial would generate a bad atmosphere in which people would tend to avoid contact with tax officials.

Fanning was commenting on the threat launched earlier by the directorate general to send two foreign expatriates to prison for being uncooperative in settling tax arrears totaling some Rp 67 billion (US$7.97 million). The directorate was waiting for approval of the Ministry of Finance.

The directorate had previously sent one local businessmen by the initial of JL to Cipinang Penitentiary for tax evasion. Such a move is allowed under a recently introduced ruling.

Chairman of the Jakarta Japan Club Foundation Takafumi Sone shared Fanning's concerns, saying that the detention of foreigners without prior trial was "too much".

He added that Japanese businessmen would always comply with existing tax regulations.

"We are not comfortable because we have already been facing hard times here... If there is a problem, we usually file an objection with the tax office and settle it at the tax court," said Sone.

Both businessmen said that a reform package was needed to overhaul the country's tax office and legal system.

The directorate declined to reveal the identity of the two foreigners. However, a source at the directorate said the two were from the United Kingdom and Japan.

The tax office has accused them of failing to pay their corporate and personnel income and value-added taxes.

The two foreigners had been barred from leaving the country.

The directorate has also warned another 16 expatriates that they could face the same fate if they continue to refuse to pay their taxes.

But Director General of Taxation Hadi Purnomo said on Wednesday that the two expatriates had agreed to settle their tax arrears and his office would postpone the detention threat.

"As of today, the two expatriates have started to repay part of their taxes. We now have good reason to postpone their detention," said Hadi during his visit to Medan, the provincial capital of North Sumatra.

However, Hadi said the government would still bar the two expatriates from leaving the country until they paid the remainder of their tax obligations to the government of Indonesia.