Plan to tax Batam island delayed again: Dorodjatun
Dadan Wijaksana, The Jakarta Post, Jakarta
The government said on Monday it had delayed until the end of this year a plan to impose value-added tax (VAT) and luxury tax on Batam island so as to give more time for the drafting of a bill to convert the island into a free trade zone (FTZ).
Coordinating Minister for the Economy Dorodjatun Kuntjoro- Jakti told reporters after a limited Cabinet meeting that the decision was taken so as to give more leeway for the improvement of the bill.
"We decided to delay the plan until the end of the year. In the meantime, we're establishing two teams to look into this and provide the necessary input for the drafting of the bill. Hopefully, the work of both teams will be completed by the end of the year," Dorodjatun said.
He added that the first team, to be headed by Minister of Justice and Human Rights Yusril Ihza Mahendra, would be in charge of considering all matters related to the necessary legal mechanisms.
"As for the second (team), headed by myself, we'll look more into problems in the field, the more technical and operational issues," Dorodjatun said.
The delay is the latest move from the government, which has been trying to tax Batam since 1998. Based on the previous deadline, the plan to introduce VAT and luxury tax in Batam was supposed to have been implemented starting in April.
This means that for at least another nine months, Batam will continue to enjoy tax exemptions, as has been the case for years.
Batam was declared an industrial bonded zone in 1978 so as to lure investment and foster export competitiveness. The island has been the country's main industrial center ever since, with 70 percent of economic growth being contributed by an export- oriented manufacturing sector.
Batam has for many years been a de facto FTZ, and the tax incentives originally intended for export-oriented industries have also been enjoyed by Batam residents and local firms on the island producing products and services not destined for export.
This prompted the finance ministry in 1998 to reimpose VAT on Batam to raise revenue for the cash-strapped government. However, after strong protests from foreign investors, the VAT policy was postponed.
The finance ministry then extended the tax facilities while awaiting the enactment of a law to give the island free trade zone (FTZ) status.
FTZ status for Batam would mean that companies operating on the island, which is located some 20 kilometers from Singapore, would be allowed to import goods without paying customs duties and taxes pending their eventual processing, transshipment or reexport.
Nevertheless, the plans will likely meet resistance from some legislators, who say that the granting of FTZ status to Batam runs against the spirit of the autonomy laws, which give greater administrative powers to local governments.
FTZ status would mean that the central government would still have a say in determining policy on the island.