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)