Protection for upstream industry kept to minimum
Protection for upstream industry kept to minimum
PANDEGLANG, West Java (JP): Tariff protection for upstream
industrial products will be limited to a maximum of five percent
to avoid heavy burdens on consumers, a senior official says.
"The government would actually prefer to help improve the
competitiveness of domestic industries against imports by
introducing incentives rather than imposing import duties which
would burden downstream industries and consumers," Director
General of Chemical Industries Sujata said at the opening of a
four-day seminar on Wednesday night.
The seminar, organized by PT Chandra Asri, a company currently
constructing a giant olefin center in West Java, discusses the
development of the country's petrochemical industry.
Sujata said the government, which supports the implementation
of the new principles of the General Agreement on Tariffs and
Trade (GATT), is committed to imposing import tariffs of no more
than five percent on upstream industrial products and a maximum
tariff of 30 percent on downstream industrial products in
protecting domestic industries.
Tariffs on other products will range between five percent and
30 percent, he said.
However, because imposition of duties will increase production
costs which in turn will affect the interest of consumers, the
government would rather introduce incentives in the form of tax
exemption and other facilities, he said.
The government has been under fire since State Minister of
Investment Sanyoto Sastrowardoyo said recently that the
government would likely protect Chandra Asri against imports
because the establishment of its olefin plant costs a lot of
money and its operation can help the country reduce spending for
imports of olefins.
Sujata said the government, for example, is considering
reintroducing tax respites -- exemption of tax payments for the
first few years of operation -- for certain industries in a bid
to attract more private investments and to improve the
competitiveness of the country's products.
According to Tax Director General Fuad Bawazier, the tax bills
currently being deliberated by the House of Representatives (DPR)
will, if enacted, allow the reintroduction of tax respites. The
revival of such a tax facility is regarded necessary because many
countries in the region also offer such a facility.
Efficiency
Sujata said the government, before effecting protectionism for
any particular industrial company, will ask a company to show its
financial structure and the efficiency of its operation.
"When the financial structure of a company is weak, a
protectionist measure will only result in inefficiency."
If the main cause of uncompetitiveness of a company's products
is the weak structure of its finance, for example, the company
will be required to improve that structure before asking
protection from the government, he said.
When asked about the possible protection for Chandra Asri,
Sujata said: "Up to now, I haven't been informed at all about its
financial structure nor about its production costs."
Chandra Asri is scheduled to start commercial production in
June next year with an initial annual production capacity of 1.3
million tons of olefin products.
Sujata, however, revealed that even if the government extends
protection to Chandra Asri, it cannot impose tariffs on imports
of olefin products because it has been committed to not increase
their tariffs from the current levels.
"If the protection were given in the form of tariffs, it will
only burden downstream industries, which will in turn diminish
the competitiveness of their products on the world market," he
explained.
Chandra Asri's vice president, Peter F. Gontha, who was
present at the seminar along with the company's president Prajogo
Pangestu, said that if the government gives his company a tax
respite for a certain period of time it will be enough.
"If we are freed from paying income tax for a certain period
of time, for instance, we will be able to cut production costs by
20 percent," Gontha said.(rid)