No let-up seen in debate over tax law amendments

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.