Fri, 04 May 2001

KPEN warns govt not to overtax businesses

JAKARTA (JP): The National Economic Recovery Committee (KPEN) urged the government on Thursday not to burden local companies with more taxes in its efforts to reduce the widening deficit in the country's state budget.

KPEN executive Sofjan Wanandi said the higher tax burden would inflict further pain on the country's ailing business sector.

"I'm afraid that the greatest burden from the budget revision will be faced by the business sector," Sofjan told reporters at a media meeting.

The business sector, he said, had always been an easy target for the government whenever it needed a boost in revenues. "It's like going hunting at a zoo; that's what's happening now," he added.

The sharp drop in the rupiah and continual increases in interest rates in recent months have caused a widening of the budget deficit to about 6 percent of gross domestic product or about Rp 88 trillion (about US$80 billion at the current exchange rate) from an initial target of 3.7 percent.

The government has been preparing a number of alternatives to cover the budget deficit, including a raising of the tax receipt target by Rp 3 trillion.

"Judging from the revenue assumptions the government has, I think that will be difficult to achieve," Sofjan said. This difficulty, he said, might cause the government to impose higher taxes on existing taxpayers.

"While instead, the government should seek to broaden the tax base," he added.

Former director general for taxes, Machfud Sidik, has said that the country depended too much on corporate taxes, and was slow in tapping the potential of individual taxpayers.

According to him, of approximately 20 million potential private taxpayers, only 1.3 million were registered with his office. And even then, only a handful pay their taxes in full.

"We are willing to work harder and make sacrifices only if you (the government) work harder too," Sofjan continued.

He said that although KPEN did not object to the state budget revision, it wanted the revision to take into account industry's shaky recovery.

Since the 1997-98 economic crisis, the country's real sector has yet to fully regain its pre-crisis strength.

Blocking its path to recovery is a multitude of problems, many of which are rooted in the country's chaotic political landscape.

President Abdurrahman Wahid and legislators are locked in a drawn-out standoff that has been escalating since early this year.

Legislators' moves to initiate an impeachment process have dashed hopes of political stability returning soon.

KPEN chairman Aburizal Bakrie, who also heads the Indonesian Chamber of Commerce and Industry (Kadin), said political uncertainties hampered investment decisions.

He predicted that many companies might not make it through this year if political instability continued to hamper business activities.

The lack of new investment might also cost the country the strong export and consumption growth it had enjoyed last year, according to economists.

To maintain recovery, industries need to invest in expansion, yet funding sources are scarce, with the banking sector still unable to resume its role as lender.

Loans from banks have become expensive as interest rates have soared in line with the central bank's move to hike its certificate rates.

Aburizal said Bank Indonesia should have avoided raising its interest rates in defending the rupiah.

This year alone, the rupiah has lost around 17 percent of its value, largely caused by political tensions.

To prevent the rupiah from being used to purchase the U.S dollar, Bank Indonesia raised its certificate rate, which now stands at over 16 percent.

"Raising interest rates only causes more bleeding in the banking sector," Aburizal explained.

Banks suffer from negative spread when the revenue they get from interest rates on loans falls below the interest payments they make to depositors.

He also urged Bank Indonesia to soften the prudential banking requirements imposed on banks this year.

He suggested that this year's minimum capital adequacy ratio for banks be lowered from 8 percent to 6 percent.

He further proposed an easing of the requirement for the minimum non-performing loan ratio from 5 percent this year, to 5 percent over the next two years. (bkm)