Policy removing tax relief for debtors deplored

Policy removing tax relief for debtors deplored

JAKARTA (JP): The Indonesian Chamber of Commerce and Industry
(Kadin) criticized on Monday the government's decision to
withdraw tax facilities given to indebted companies, describing
the measure as being unrealistic.

Kadin Chairman Aburizal Bakrie said on Monday that the
withdrawal of tax incentives provided to indebted companies under
the control of the Indonesian Bank Restructuring Agency (IBRA),
the Jakarta Initiative Task Force (JITF), and the Indonesian Debt
Restructuring Agency (INDRA) as of Jan. 1, were counterproductive
to efforts promoting economic recovery.

"In the long run it will make the path towards national
economic recovery more obscure," he said in a statement, adding
that it would also impede indebted companies' restructuring
programs.

"Where will they get cash to pay the tax? Aren't their assets
and liabilities transferred for restructuring," Aburizal said.

In an effort to accelerate the restructuring of Indonesia's
corporate debt, the government introduced tax incentives for
indebted companies last year.

The incentives were made possible through the issuance of a
new tax law in July last year, which previously regarded debt
reduction as a gain to the debtors, and could therefore be taxed.

The decision to provide value added tax incentives was
canceled by the issuance of a decree by the Minister of Finance
no. 551/KMK.04/2000 taking effect in Jan. 1.

Aburizal said that a further delay in the restructuring of
Indonesia's corporate sector would undermine the banking sector,
despite it already having been recapitalized.

"The recapitalization of the banking sector, without being
followed by corporate restructuring, will undermine the banking
industry which has just started to show recovery," he said.

He said that Kadin hoped the government would reconsider the
decision and, if needed, aggressively speed up economic recovery
by reinstating decrees providing tax incentives for companies
undergoing restructuring, whether in the form of hair cuts, debt
to equity transfer, or debt to asset transfer.

"And this should be available not only to JITF clients, but
also to companies being restructured by IBRA and INDRA so that
all companies, big or small, can also enjoy the facility,"
Aburizal said.

JITF mediates between companies with debts totaling more than
Rp 100 billion (US$10.5 million), or which involve foreign
creditors.

In the statement, Aburizal also expressed his concern over the
government's decision to raise income tax rates on deposit
interest to 20 percent from 15 percent, which according to him
would create capital flight.

"Singapore offers rupiah deposits without income tax, so it is
only logical that customers will transfer their funds to
Singapore," he said, adding that the capital flight could not be
controlled or restricted.

He said that the government should return to the old tax
ruling regarding income generated from bank deposits, to prevent
small-time depositors from transferring their funds to illegal
institutions which offer higher interest without tax cuts.(tnt)