New forestry tax sparks controversy over stated aim

JAKARTA (JP): The government's planned introduction of a progressive tax on logging activities has stirred opposition in the timber industry.

Timber companies, mostly small and medium enterprises, complain the tax will hurt them instead of succeeding in its stated intent to encourage big timber companies to reduce their massive logging operations.

Chairman of the Indonesian Forestry Society Sudrajat DP told The Jakarta Post the tax reflected the government's inconsistency in managing its forest resources.

He discounted the scheme -- announced last week as an alternative to encourage big timber companies to reduce ownership of their vast forest concession areas -- as infeasible.

"The new tax will instead encourage big timber companies to maintain their grip on the country's forestry resources. They will be willing to pay higher taxs if they are allowed to maintain their massive concession areas," he said.

Even with the progressive tax, Sudrajat said, the large logging operations would remain more economically viable than the small ones.

Timber companies are currently required to pay reforestation funds of between Rp 10,000 and Rp 28,500 per cubic meter of the trees felled, forest royalties of between Rp 42,000 and Rp 80,000 per cubic meter and annual concession fees. Starting this month, they are also required to pay a levy and grant of US$2 per cubic meter, a special fee collected to help local communities.

Chairman of the Association of Indonesian Forest Concessionaires Adi Warsita Adinegoro shared Sudrajat's view.

He said the progressive scale -- imposing higher taxation on timber companies with higher concession areas -- would prove a financial burden for small forest concession holders.

Both Sudradjat and Adi regretted that the move to impose the tax was taken without prior consultation with the timber industry.

Sjahrani Sjahrin, the vice chairman of House Commission III overseeing agriculture, forestry and plantation and food affairs, said the progressive tax was imposed merely to raise the government's revenue from the forestry sector, considered low in the past.

The government's plan to impose progressive taxes on the country's timber companies was announced by Minister of Forestry and Plantations Muslimin Nasution after his meeting with President B.J Habibie last week.

The tax will be imposed on the existing timber companies whose areas exceed the maximum limit set by the government in a new minister of forestry and plantations decree issued late last year.

Under the new regulation, each concessionaire will be limited to a maximum 100,000 hectares in a province. Although concessionaires will be allowed to manage forests in other provinces, the total area under their management cannot exceed 400,000 hectares nationwide.

When the concession rights expire, the government will take over the excess and auction them according to terms set by the International Monetary Fund (IMF).

This year, the government plans to auction three million hectares of forests, mostly taken over from existing timber companies whose concession rights expired.

According to the minister's data, at least 421 private companies are currently involved in logging activities on 51.5 million hectares. However, most of the companies are operating under 33 leading business groups.

The Kayu Lapis Indonesia Group owned by Hunawan Widjajanto is the largest forest concession holder, with 3.5 million hectares. Next is Burhan Uray's Djajanti Group with 2.9 million hectares, Prajogo Pangestu's Barito Pacific with 2.7 million hectares and Mohamad "Bob" Hasan's Kalimanis with 1.6 million hectares.

Muslimin said the tax was mainly designed to speed up the process of relinquishing the big timber companies' control of the country's forests.

"Legally, we cannot just cut their concession areas. That's why we will introduce progressive levying so that businesspeople controlling, say, about 100,000 hectares of forests will pay double than those who have 50,000 hectares."

Muslimin said the rate of the tax and mechanism on its enforcement were being prepared. He guaranteed it would be fair to small timer companies.

He brushed aside complaints raised by timber companies, saying they "did not fully understand the situation".

"If they really understood the motive behind the progressive tax, they would not complain. The progressive tax is imposed to save them."

The government began to award forest concessions to private companies in 1971 under the auspices of the forestry law, which grants concession holders the sole right to cultivate and exploit the forest in their concession areas.

It has been blamed for leading to the concentration of the country's forest assets in the hands of a few major business groups. (gis)