No more tax relief for foreign-funded projects

No more tax relief for foreign-funded projects

JAKARTA (JP): In a government attempt to support locally-
funded projects, all contractors, suppliers and consultants
involved in government projects financed by foreign loans will no
longer be exempt from income tax.

A presidential decree was issued last month to implement the
newly amended tax law, Tax Director General Fuad Bawazier said
yesterday, and will apply to all contracts signed as of April
this year.

The presidential decree was one of a series of regulations
issued over the past few weeks to implement the new tax laws
which were enforced early this year to replace the old ones
enacted in 1983.

Fuad said that the new tax policy is expected to raise
additional tax revenues of at least Rp 200 billion (US$93
million) in the coming fiscal year.

"We expect to collect around Rp 200 billion in income tax on
the 11 trillion rupiah's worth of foreign-funded projects
scheduled for the 1995-96 fiscal year," Fuad told reporters,
adding that the new tax measure would not affect other taxes and
levies.

"Other than income tax, all tax obligations for foreign-funded
projects are still borne by the government," he said.
"Contractors, suppliers and consultants are still exempt from
import duties, surcharge tax, value added tax and sales tax for
luxurious goods related to foreign-funded government projects."

The government, at present, exempts contractors, suppliers and
consultants involved in foreign-funded projects from the above
tax obligations so that all portions of the loans can be put
toward project development.

As for the reasons behind the change, Fuad explained that the
majority of contractors, suppliers and consultants taking part in
government-funded projects are now profitable and less in need of
income tax relief.

"Therefore, it will be fairer if the income tax relief is
abolished," he said, adding that the new tax treatment is fully
in line with the one applied to those undertaking locally-funded
projects.

Tax returns

The tax director general yesterday reminded taxpayers that
income tax returns for 1994 should be submitted to tax offices by
the end of this month and that all returns will still be based on
old income tax rates.

The new income tax law, effective as from January, reduces the
income tax to 10 percent from 15 percent for the lowest income
bracket, to 15 percent from 25 percent for the middle income
bracket and to 30 percent from 35 percent for those in the
highest income segment.(hen)