New tax measures announced
JAKARTA (JP): The transfer of assets between two banks which are in the process of merging has been exempted from capital gains tax, under one of six new tax regulations announced by Tax Director General Fuad Bawazier yesterday.
Faud said the exemption was designed to encourage smaller banks to merge with each other in order to strengthen their capital.
The other five regulations cover the tax treatment of build, operate, transfer (BOT) arrangements between land owners and investors; equity participation of venture capital in small and medium-sized companies; and income from dividends and interest on bonds.
The tax director general said that, under the new regulations, unaffiliated banks are permitted to merge with one another.
Decree of the Minister of Finance No. 249/KMK.04/1995, which was issued on June 2, also eased bank merger requirements.
"Under the 1994 ruling on business mergers, only banks which had special relationships with one another could merge," Fuad said while announcing the new regulations.
The new ruling means that the transfer of assets from one bank to other banks in the process of a merger process is exempted from capital gains tax, even where the merging banks are not affiliated.
However, the requirement that there be a previously-existing special relationship will remain in respect of companies outside the financial sector. Thus the transfer of assets from one non- financial company to another will be exempted from capital gains tax only when the merging companies are affiliated with one another and only when the merger is conducted in context of an initial public offering of shares.
"Despite tax incentives, banks still faced difficulties in merging under the old ruling because of the requirement of a special relationship between the merging banks," Fuad said.
He said he hoped the new rules would encourage smaller banks to strengthen their capital by merging.
"If the merging banks are owned by different business groups, so much the better," he added.
BOT arrangements
The new provision on the tax treatment of BOT arrangements between land owners and investors is contained in Decree of the Minister of Finance No. 248/KMK.04/1995, dated June 2.
Faud said that the new regulation, specially designed to promote BOT business deals in the country, allows investors to amortize all their investments on an annual basis during the BOT contract period.
"The most important element of this regulation is the clarification that the transfer of land to the investor (under a BOT contract) is not considered renting or leasing. It is, therefore, exempted from income tax," he said.
He said that land owners were required to pay income tax after the term of the contract had been completed at a rate of five percent of the gross value of the property transferred by the investor.
The revised tax treatment for capital ventures is contained in Decree of the Minister of Finance No. 250/KMK.04/1995, which stipulates, among other things, that the dividend income received by venture capital companies from their equity participation in small and medium-sized companies is exempted from income tax.
The regulation defines small and medium-sized businesses as those with annual net sales turnovers of Rp 5 billion (US$2.2 million) or less.
However, the regulation limits the equity ownership of venture capital companies in small and medium-sized enterprises to a maximum of 10 years.
The regulation also requires venture capital companies to sell their shares in listed companies within three years of the initial public offering.
In a circular yesterday, Faud clarified that interest incomes from bonds and dividend incomes from shares, whether listed on the capital market or not, were subject to income tax at the flat rate of 15 percent of the gross amount.
Another circular issued yesterday said that companies intending to obtain the status of businesses operating in remote areas could now apply for such status from the provincial office of the tax directorate general, instead of from the tax director general, as was previously required.
Companies classified as businesses operating in remote areas are granted additional tax benefits. They are, for example, allowed to deduct various allowances and perks granted in kind to their employees from their taxable income. (hen)