S'pore, Japan to lobby IMF on tax incentives

S'pore, Japan to lobby IMF on tax incentives

JAKARTA (JP): Singapore and Japan have promised to help
Indonesia lobby the International Monetary Fund (IMF) to maintain
tax incentives in the industrial bonded zones of Batam, Bintan
and Karimun islands.

Indonesia's Ambassador to Singapore Luhut Panjaitan said on
Wednesday the Japanese and Singaporean governments shared the
concerns of their businesspeople over Indonesia's decision to
impose value-added taxes (VAT) and sales taxes on luxury goods
on the islands.

"The ambassadors of Singapore and Japan have met us in their
efforts to lobby the IMF to ease its requirements (on Indonesia),
especially in the industrial bonded zones of Batam, Bintan and
Karimun," he said during a meeting with the Batam Island
Authority.

Luhut said the IMF had made an incorrect decision in requiring
Indonesia to scrap its free tax facilities on Batam as part of
the country's economic reform.

"Batam has contributed about US$4.7 million in foreign
exchange earnings per year thanks to huge foreign investments on
the island," he said, adding that the tax-free facilities had
been very successful in luring foreign investors to the island.

Many investors felt tricked because Indonesia broke its
promise to investors that it would not impose taxes on companies
operating on the islands, he said.

In an attempt to attract investors to Batam, the government
made Batam, some 19 kilometers south of Singapore, an industrial
bonded zone in 1978. Later, several islands near Batam, including
Karimun and Bintan, were included in the bonded zone.

According to the previous policy governing this bonded zone,
businesses on Batam and the other islands in the zone were free
from all import duties and "other government levies".

However, the government issued a decree in 1998 waiving the
tax incentives at the prompting of the International Monetary
Fund.

Under the new tax regulation, which took effect on April 1,
export-oriented companies will receive refunds for VAT and luxury
good tax payments only after they show proof they exported their
products.

Some 67 foreign companies currently operating on Batam have
threatened to leave the island in protest of the new tax policy,
according to the chairman of the Batam chapter of the National
Chamber of Commerce and Industry, Asman Abnur.

He said the firms were considering relocating their businesses
to Singapore. At least three foreign companies -- Unocal, Natuna
and Seagate, all of which operate in the oil industry -- have
moved to Singapore since the government applied the new tax
policy on April 1, he added.

Batam's local government reportedly agreed to temporarily
postpone imposing the value added tax in response to mounting
protest from the public.

Thousands of Batam residents staged a demonstration on Monday
to protest the new tax regulation. According to reports,
residents will stage another demonstration on Thursday.

However, the director general of taxation, Machfud Sidik, said
the Batam administration's decision to postpone the tax policy
must first be approved by the House of Representatives.

He defended the government's change in tax policy, insisting
it would not scare off investors. "We believe investors will not
run away just because we impose the taxes. Investors do not
choose Batam only for its tax-free facility, but also for its
strategic location, infrastructure and other things."

Economist Pande Radja Silalahi echoed Machfud's opinion,
saying investors were "just bluffing" when they said would leave
the island in response to the new tax policy. (cst)