Stakeholders said the local shipping industry would not be ready for the implementation of the cabotage principle, scheduled for 2011, without more incentives and regulatory reforms.
President director of PT Samudera Indonesia Tbk Randy Effendi said the local shipping industry might need more than three years before it could expand its armada due to unfavorable policies on taxes and a lack of incentives.
"The local shipping industry needs more time to prepare, at least until 2015," Randy said, "Unless, the government exempts the 10 percent value added tax (VAT) on vessel purchases and capital gains tax (CGT)."
Randy said VAT had caused domestically made vessels to become more expensive than those built outside of the country, and that CGT had caused local shipping companies to suffer capital cutbacks.
"When a shipping company receives money from an insurance firm, for example, the money will be cut by 30 percent. This is ironic because that amount of money can be used to purchase a new vessel," Randy said, adding that the policy could discourage local shipping companies from investing in new vessels.
Under the shipping law, passed by the House of Representatives earlier this month, only locally flagged vessels would be allowed to transport domestic cargo between Indonesian ports.
Director General of Sea Transportation Effendi Batubara said cabotage would bring more opportunities to local players.
The Transportation Ministry said Indonesian flag vessels last year carried 148.7 million tons of domestic cargo, or 65.3 percent of the country's total, while the remaining 34.7 percent was served by foreign shipping companies.
To meet domestic demand in 2010, the ministry said the local industry must provide 654 vessels.
Law expert on maritime issues Chandra Motik said the industry would not be ready by 2011 to carry out all freight services in Indonesian waters.
She said if the industry was not ready, it would face fierce competition from foreign investment.
"Foreign investors could just disburse their money to local companies to get new vessels. As a consequence, the vessels would be foreign-owned, but would fly Indonesian flags," she said.
She said the government and lawmakers should think carefully when drafting regulations for the implementation of the law, which are slated for completion by March next year.(dia)
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