Official wants meat products exempt from VAT

JAKARTA (JP): The Ministry of Agriculture is currently lobbying the Ministry of Finance to scrap a new ruling which imposes a value added tax (VAT) on the meat and dairy industry in order to protect producers against cheaper imports.

The VAT has been imposed on raw materials, such as feed stocks, used by farmers, as well as their meat and dairy products.

Director General for Animal Husbandry Sofjan Sudardjat said the 10 percent VAT has severely undermined the competitiveness of local products against foreign imports which are only subject to a 5 percent import tariff.

"Local producers will surely lose out in the competition," Sofjan told reporters on the sidelines of a seminar discussing the implications of the new VAT on meat and dairy products which came into effect on Jan. 1.

Local producers have even been forced to cut prices while their costs have soared, he said.

The Ministry of Agriculture has been locked in a dispute with the Ministry of Finance over the imposition of the VAT which also affects most other agricultural products. The tax is only imposed on products sold in supermarkets and not traditional markets.

The Ministry of Finance has come under strong pressure to collect more taxes from the public to finance various government programs, in particular the bailout of dozens of commercial banks.

Minister of Finance Prijadi Praptosuhardjo said last month that "for the time being" the VAT imposition should remain.

Poltak Sitorus, a member of the House of Representatives, disclosed on Tuesday that the government was currently drafting a regulation that would exempt certain products from VAT.

Animal feed, and its raw materials, were among those to be considered for exemption, said Poltak, who sits on the House's Commission IX dealing with government finances.

Minister of Agriculture Bungaran Saragih, in an interview with Metro TV on Tuesday, underlined the need to protect Indonesian farmers against foreign producers.

"Farmers do not get subsidies. We (the ministry) will endeavor to remove the VAT," he said.

Sofjan said that, given the choice, consumers would opt for less expensive meat, eggs and milk products irrespective of whether they were produced locally or abroad.

"This is very discouraging to producers, especially at a time when they have just began to recover from the economic crisis," he said.

Sofjan said the tax policy would force the local meat and dairy industry, which currently has a gross asset value of Rp 30, trillion (US$3.16 billion), into bankruptcy.

All agricultural products had previously been exempted from the 10 percent VAT until a new tax law was enacted by the House of Representatives last year. The government imposed the tax on these products in its calculations for the 2001 budget.

The Association of Meat and Feedlot Producers called the government "insensitive" because of its policy to tax agricultural products.

Association chairman Yudi Guntara Noor recalled that the Ministry of Agriculture was not involved in drafting the tax law.

"Not surprisingly, the legislation has now provoked many protests," Yudi, president of PT Agro Nandini Perdana livestock trading company, told reporters at the seminar. (03)