Rini calls for a delay on tax plan for Batam

Rini calls for a delay on tax plan for Batam

Tantri Yuliandini, The Jakarta Post, Jakarta

Minister of Industry and Trade Rini Soewandi has asked the
finance ministry to postpone the imposition of value added tax
and luxury tax on the island of Batam in the Riau province for
another six months to prevent investors from abandoning the
island.

"We have asked for a postponement in the implementation of the
taxes for at least six months until mid-2002," Rini was quoted by
Antara as saying.

The government intends to impose value added and luxury taxes
on the island early next year as pressure mounts to collect more
domestic tax revenue for the 2002 state budget.

But the government also plans to turn Batam into a free trade
zone, which would enable companies on the island to import goods
without paying customs duties and taxes, pending their eventual
processing, transshipment or re-exportation.

Rini, however, said that the change from an industrial bonded
zone to a free trade zone would take some time to accomplish, and
although the new bill on Batam's free trade status was already in
the hands of the Minister of Justice and Human Rights Yusril Ihza
Mahendra, it still needed the approval of the House of
Representatives before it could be passed into law.

Earlier, director general of taxation Hadi Poernomo said that,
if by January 2002 a new decree on Batam's exemption from the
taxes had not been approved, then they would be collected on the
island from Jan. 1.

He further said that the 2002 tax ratio of 13.03 percent
agreed to by the House of Representatives has already taken into
account value added tax (VAT) contributions from Batam.

He said that VAT contributions from Batam would amount to
approximately Rp 322 billion (about US$30.7 million). The total
tax revenue estimate for the 2002 state budget is Rp 184.7
trillion.

Batam was initially declared an industrial bonded zone in 1978
to attract foreign investment and bolster export competitiveness.
The same status was later given to the nearby islands of Rempang
and Galang, forming a total bonded area of 715 square kilometers.

However, the islands have technically acted as a free trade
zone for the last 10 to 15 years, and tax incentives originally
intended for industry have also been enjoyed by all Batam
residents, including Indonesian companies providing products and
services not destined for export.

This situation has caused resentment among companies based
outside the island, leading the government, at the prompting of
the International Monetary Fund (IMF), to reimpose value added
tax (VAT) in 1998 to ensure equitable tax treatment.

The ruling, which was originally to take effect in April last
year, met with strong resistance both from Batam residents and
foreign industrialists based here.

Foreign companies operating on Batam had threatened to leave
the island in protest at the new tax policy, and considered
relocating their businesses.

It was then decided to postpone the imposition until the
following year.