SSX bond trading drops sharply on unclear tax policy

SSX bond trading drops sharply on unclear tax policy

JAKARTA (JP): Daily bond transactions on the Surabaya Stock
Exchange (SSX) have dropped to Rp 2.5 billion (about US$211,000)
from an average Rp 36 billion last year as the market circumvents
a new tax regulation, according to an SSX executive on Friday.

SSX president Anton Natakoesoemah said that confusion over a
new tax policy on bond trading had deterred investors from
reporting their bond transactions to the SSX.

"The tax policy is simply not conducive for the exchange,"
Anton told The Jakarta Post.

He was referring to Government Regulation No. 139/2000 on tax
on income from bonds. The policy was announced last December and
has been effective since Jan. 1.

Under article 3 of the regulation, domestic and foreign-based
taxpayers must pay tax of 15 percent and 20 percent respectively
on interest earnings from bonds.

Bond owners must also pay another 0.03 percent of the gross
transaction on income obtained as capital gains, interest and/or
discounts on bond trading.

The analysts said that on top of paying the 20 percent income
tax on bond interests, investors must pay another 0.03 percent of
the gross transaction value, which included interest income.

Anton said that because of the new tax policy most investors
were carrying out transactions outside the market to avoid paying
tax.

Unlike shares, bonds do not bear the names of their owners so
that trading can be carried out outside the bourse.

The SSX is currently the only exchange serving as the local
bond market.

In response to complaints from the bond market, the tax office
has promised to review the new tax policy.

Yet three months have passed and the bond market is still
waiting for the outcome of the review, Anton continued.

Aside from the tax policy, he cited lackluster trading, and
soaring Bank Indonesia Certificate (SBI) rates behind the drop in
SSX bond trading.

"With SBI rates this high, people chose to invest in Bank
Indonesia certificates rather than bonds," he said.

The central bank has hiked rates on its promissory notes to
around 16 percent, in an effort to help defend the
rupiah.

Subsequently, most bonds carrying fixed rates have lost their
appeal to bond investors.

Anton said around 55 companies have listed their bonds with
the SSX, at a combined value of Rp 20 trillion.

The value of the government recapitalization bonds traded
through the SSX has reached about Rp 350 trillion, he added.

Although the bond market is sluggish, he said the SSX expected
the issuance of new bonds from five companies in the near future.

Among them are bonds from publicly listed state
telecommunication company PT Indosat; beverage producer PT Ultra
Jaya Milk; and textile company PT Indo Rama Synthetics.

Nonetheless, the sharp drop in bond trading has hurts SSX
earnings, which were already suffering from sluggish trading on
its stock market.

Anton said the SSX was struggling to find new funds to keep it
afloat while trading volume remained poor.

"If things go on like this and we don't get fresh funds, we
can probably survive only until October," he said.

He said a study by the Association of Indonesian Securities
Companies (APEI) revealed that the SSX required additional funds
of Rp 20 billion over the next three years.

Anton said that the SSX had appealed to its shareholders, most
of whom were APEI members, for a fresh capital injection in that
amount.

For its part, the SSX has instituted efficiency programs
resulting in, among other things, salary cuts for its employees,
including its board of directors.(bkm)