Tax holidays should be open to all: Businessmen

JAKARTA (JP): Businessmen and economic analysts have called on the government to open its 10-year tax holiday to new companies operating in all sectors of business.

Chairman of the Indonesian Chamber of Commerce and Industry (Kadin) Aburizal Bakrie said yesterday that all new companies deserve the tax exemption.

On Thursday, the government announced the reintroduction of an up to 10-year tax holiday for new companies operating in certain industries. Companies operating outside Java and Bali will be able to enjoy a 12-year tax holiday.

The last time the government offered similar tax holidays was in 1984.

According to the Ministry of Finance, the tax facility would give exemption from not only corporate income tax but also from income tax on dividends paid to foreign-based shareholders.

The ministry said that industries which qualified for tax holidays would be determined by President Soeharto based on recommendations from the Team for Assessment of Tax Facilities for Certain Industries.

James W. Castle from Business Advisory Indonesia questioned the limitations. He said yesterday that giving different treatment to certain industries was unfair.

Christianto Wibisono of the Indonesian Business Data Center said the tax holiday should be aimed at narrowing the gap in economic development between the western and eastern parts of the country, rather than aiming it at certain industries.

Aburizal said that tax exemptions for new companies were still common, even in Europe, so it would do no harm for the tax holidays to be given to all new companies rather than those in specific industries.

Priorities

In Poland, for example, companies can enjoy tax holidays for their first 10 years of operation and then they need only pay 50 percent of income taxes for the following 10 years, he said.

Castle said that companies operating in export-oriented industries and those involved in infrastructure development should be given priority for tax holidays.

"The government's decision to provide a longer tax holiday to companies operating outside Java and Bali is appropriate," he told The Jakarta Post.

But he said that longer periods of tax immunity would not necessarily solve the problems of companies in those areas if local infrastructure remained poor.

Priority in developing eastern Indonesia's economy should be given to improving infrastructure, he said.

Castle said that the investment climate of Indonesia was still promising, given continued increases in both foreign and domestic investment approvals.

He said that more investment incentives were needed so that companies did not relocate their factories to other developing countries which offered better incentives.

Christianto said the reintroduction of tax holidays was not expected by most economists.

"What we are really waiting for are not the incentives to promote certain business sectors but those which could help narrow the economic gap between the western and eastern part of the country," he said.

Like Aburizal, Christianto said that the 12-year tax exemption given to investors operating outside Java and Bali would not be adequate in encouraging companies to set up in eastern Indonesia.

"If we want to narrow the economic gap between the more developed west and the least developed east, the additional time should be lengthened to at least five years," Christianto told the Post.

He said the government should be clear and indiscriminate when selecting the industries for tax exemptions. Otherwise, the tax incentives would benefit only those with good government connections. (hen)