New incentives on offer for investment in eastern areas

JAKARTA (JP): The government is to offer new tariff and tax incentives and other facilities to attract more investment in the eastern provinces, especially Irian Jaya.

Executive Chairman of the Eastern Indonesian Development Council B.J. Habibie told a gathering of business leaders yesterday that the government would soon issue three Presidential decrees to adopt Biak in Irian Jaya as a pilot project to be promoted as an integrated economic development center to benefit from the incentives.

"Other districts in the eastern provinces can benefit from the incentives when they are already promoted as development centers," Habibie said.

The council announced last month that it would establish such development centers in 13 provinces in the eastern part of Indonesia to help bridge the development gap between the western and eastern provinces.

Habibie, also state minister of research and technology, explained that such development centers will be treated as bonded zones and enjoy a number of attractions, including tariff and tax incentives.

When explaining the planned incentives, State Minister of Investment Sanyoto Sastrowardoyo, a member at the council, said companies operating in Biak can postpone the payment of duties and surcharges on imports of capital goods and raw materials.

In addition, they are not required to pay value-added tax, luxury taxes or income tax on imports or sales of imported goods to other companies in Biak.

The companies on the island are also exempted from paying income tax, based on articles 22, 23 and 25 of the income tax law No. 10/1994. They can also get reductions from the tariffs stated in article 26 of the tax law.

Article 22 governs the procedures to collect income taxes.

Article 23 stipulates that the tax rate of 15 percent is imposed on incomes from dividends, savings interests, royalties, prizes, rents as well as fees on technical, management, construction, consultants and other services, paid to local companies or legal entities.

Article 26 is similar to article 23, except that the income is paid to foreign companies or legal entities and the tax rate is 20 percent.

Companies operating in Biak can also postpone the depreciation of assets during their "infant" period of operation. The government applies a flexible range of depreciation tariffs, from zero percent to 12.5 percent per annum for fixed assets such as buildings.

Companies' extension of fringe benefits to their employees are freed from income tax, based on article 21 of the 1994 income tax law. Such fringe benefits can be included in the operational costs of the companies. They can also include any costs for the development of public facilities and infrastructures in their operational costs.

Sanyoto explained that the government will simplify administrative and licensing procedures for companies operating in Biak.

The government will also give incentives in the areas of trade regulations, customs, labors, transportation and banking.

Sanyoto reiterated that Biak is a pilot project in attracting both foreign and domestic investors to the eastern part of Indonesia.

If the incentives turn out to be effective in Biak, they will be expanded to other areas designated to be development centers in other eastern provinces.

Chairman of the Indonesian Chamber of Commerce and Industry Aburizal Bakrie welcomed the move, saying that it should attract investors to flock to the remote provinces.

"However, let's see how they will be implemented. It needs better coordination among ministries and also the willingness of local administrations to serve investors," Aburizal said.

Also on hand at yesterday's gathering were Minister of Transportation Haryanto Dhanutirto, Minister of Forestry Djamaludin Suryohadikusumo, Minister of Tourism, Post and Telecommunications Joop Ave, Minister of Agriculture Sjarifudin Baharsjah and hundreds of business executives. (rid)

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