New tax on time deposits and agricultural products 'to stay'

New tax on time deposits and agricultural products 'to stay'

JAKARTA (JP): Finance Minister Prijadi Praptosuhardjo said on
Friday that the government would not cancel the new value added
tax (VAT) on agricultural products, and the higher income tax
rate on time deposits and savings despite widespread protest.

"For the time being, we'll not revoke it (the new tax
policy)," Prijadi told reporters following a closed-door
consultation meeting with the House of Representatives budget
committee on the two subjects.

He declined to provide further comments.

The new tax rules have created controversy and highlighted the
lack of coordination among the government's economic team.

The House approved several new tax laws last year including a
VAT tax law, which become effective earlier this year. Under the
new tax law, agricultural products are no longer exempted from 10
percent VAT.

But Minister of Agriculture Bungaran Saragih demanded that the
new VAT on agricultural products be dropped to protect local
products from competing with overseas products.

Bungaran said last week following a meeting with President
Abdurrahman Wahid that the President agreed to drop the
agriculture tax.

Coordinating Minister for the Economy Rizal Ramli supported
the President's decision.

Director general of tax Machfud Sidik, who is widely rumored
to be soon dismissed by the President, said that the cancellation
of the agriculture tax would affect the government VAT revenue
target in 2001.

Machfud had earlier said that the tax office would have to
seek greater VAT revenue from the country's automotive and retail
sector in order to compensate for the possible cancellation of
the agriculture tax.

Prijadi then decided to seek political support from the
legislature to defend the new tax policy.

Legislator Aberson Marle Sihaloho defended the government's
new tax policy.

"Formally, the House can no longer ask the government to drop
new tax rules ... except if the tax law is revised first,"
Aberson said, pointing out that the legislature had already
approved several tax laws last year which allowed the government
to issue tax rulings to implement the new tax laws.

He said that among new government tax rulings were VAT on
agricultural products and a higher income tax rate on time
deposits.

Last year, the tax office issued a new tax ruling which raised
income tax on the interest revenue from bank time deposits,
savings and Bank Indonesia SBI promissory notes to a rate of 20
percent from the previous rate of 15 percent.

Many have criticized the new income tax policy, saying that it
will trigger capital flight.

Bankers claim that higher tax on time deposits would prompt
people to shift their money into other forms of investments.

But Machfud said that the concern over the new income tax on
time deposits had been exaggerated.

He said that it wouldn't cause a capital flight, because tax
was not the only factor affecting the domestic investment
climate. Other factors such as interest rates, inflation, the
exchange rate and political risks played a greater role.

He also said that the new tax rate would not discourage people
from placing their money in banks because most depositors are
risk-averse people by nature, and are therefore not likely to
shift their money into other form of investments.

"Please stop making tax a scapegoat," he told a press
conference.

"The controversy over the new tax policy only indicates the
lack of coordination among the government economic team," said an
economist working for the finance ministry.

Rizal seemed to accept the criticism. In a press conference
following dialogue with staff members of the Gadjah Mada
University in Yogyakarta on Friday, he said that the government
would form a "fiscal synchronization team" to help fix the
problem of the lack of coordination in designing fiscal policies.

Rizal said that the team would consist of senior officials of
each of the ministries covering economic affairs.

"We have agreed to form a synchronization team in the fiscal
area so that if we plan to introduce new policies such as
tariffs, taxes, and others it will first be brought to the
attention of the team," he said. (rei/44)