No let-up seen in debate over tax law amendments

The Jakarta Post, Jakarta

The fuss over the newly proposed tax law amendments has erupted again, with a powerful business group reiterating its call for business-friendly terms in the draft revisions to prevent any harm being done to the country's investment climate.

The Indonesian Chamber of Commerce and Industry (Kadin), responding to remarks by finance ministry officials that the country had made sacrifices by offering tax incentives, said the business community had never demanded incentives that reduced tax revenue during its consultation with the government over the amendments.

"On the contrary, the business community wants to see tax revenue increase as more investments flow into the country due to revised tax laws that are business friendly," Kadin chairman Mohamad S. Hidayat said on Sunday in a statement.

"Kadin has merely asked that the amendments adhere to tax laws commonly practiced worldwide, which acknowledge tax neutrality with competitive rates, and equality between tax officials and taxpayers."

Minister of Finance Jusuf Anwar previously said that the business sector was complaining too much and asking for too many incentives when the government had already sacrificed some Rp 35 trillion (about US$3.5 billion) in tax revenue to make the revisions as business friendly as possible.

The lost tax revenue, Director General of Taxation Hadi Purnomo explained, came from the draft's incorporation of a reduction in investment allowance, the lifting of duties on selected agricultural products as well as reducing income tax rates while raising the amount of non-taxable income.

The tax law amendments have been submitted to the House of Representatives for deliberation, but will likely be implemented only in 2007 -- not next year as previously planned -- as growing opposition from the business community will likely make legislators scrutinize the matter more carefully.

The three law amendments discussed include changes to Law No. 16/2000 on general taxation arrangements and procedures, Law No. 17/2000 on income tax and Law No. 18/2000 on VAT and luxury tax.

Hidayat denied that the business community was demanding more tax incentives at the expense of tax revenue, as many of the revisions were drafted by the government itself, including the reduction in the income tax rate from 30 percent to 25 percent, and the investment allowance, which is already applied in current tax laws.

"What Kadin is asking for is that the income tax rate cuts be implemented upon the law coming into effect, not after five years, to maintain the competitive edge of Indonesia's business climate and to attract more investors."

On the equality between tax officials and taxpayers, Hidayat mentioned the fact that the draft tax law amendments still contained several stipulations that severely violated that principle.

Among them were the weaker legal position of taxpayers in any tax disputes with tax officials, the subjective grounds that tax officials can use to confiscate assets and freeze bank accounts over any alleged tax evasion attempts.

"If the tax laws are revised according to the finance ministry's draft, then Kadin believes that it will fail to improve the country's business and investment climate, but instead scare away potential investors and make existing investors consider packing up and leaving," Hidayat said.