Mutual funds get tax incentives

JAKARTA (JP): The government hopes to encourage the establishment of mutual funds and the participation of local investors in the funds through income tax incentives.

Director General of Taxes Fuad Bawazier said in a circular letter dated April 30, 1996, that the dividends distributed by a mutual fund to its investors will not be subject to income tax.

However, closed-end mutual fund investors are required to pay income tax of 0.1 percent when they redeem their shares through a stock exchange.

A closed-end mutual fund, which offers only a fixed number of shares to the public, does not issue additional shares and does not redeem its own shares from the public.

Currently there is only one closed-end mutual fund, PT BDNI Reksa Dana, which is listed on the Jakarta Stock Exchange.

Meanwhile, open-end mutual fund investors are required to pay an income tax of 10 percent when they redeem their shares.

An open-end mutual fund stands ready to redeem its own shares from the public and issue new shares to incoming investors.

Fuad noted, however, that the redemption of shares in a mutual fund established under a collective investment contract -- as with cooperatives -- is not subject to income tax.

According to Capital Market Law No. 8/1995, a mutual fund can be founded under a limited liability rule or a collective investment contract.

Fuad's circular letter was issued especially in response to a suggestion from the chairman of the Capital Market Supervisory Agency, I Putu Gede Ary Suta, that the government abolish double taxation in the stock market.

Putu said an investor in the local capital market has to pay income tax on both capital gains and dividends. If a mutual fund buys or sells shares, the capital gains will go to the fund not to the investors. They should not pay such income tax twice, he said. (rid)