Tax holidays should be open to all: Businessmen

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)