Tax incentives offered to new investors

JAKARTA (JP): The Indonesian government is offering new investors in pioneering industries income tax holidays of up to eight years in a new bid to boost investment in the country.

The additional tax facilities are laid out in Presidential Decree No.7/1999 and take immediate effect.

They apply to 22 categories of industry, including textiles, chemicals, pharmaceuticals, steel, seamless pipes, turbine engines, automotive components, machine tools, processing machines, heavy machinery components, oil refineries, electronics components, information technology, instrumentation equipment and oil and mining equipment.

New investments in the 22 industries located in Java and Bali will receive a three-year tax holiday, while investments located elsewhere in the country will receive a five-year tax holiday.

An additional one-year tax exemption is available to projects which employ a minimum of 2,000 workers and a second one-year tax break is available for ventures which are at last 20 percent owned by cooperatives. Both conditions must be met at the start of commercial operations.

A third one-year tax break can be obtained by projects worth US$200 million and over, not including land and buildings.

Losses incurred during the period of tax relief cannot be deducted from taxable profits after the facility ends.

Unlike tax exemptions offered by the Soeharto administration, which were granted directly by the president to individual ventures on a case-by-case basis, all new investors in the 22 industries stand to gain from the new facilities on offer.

The decree states that tax exemption shall begin at the start of commercial operations, or five years after the project is licensed, which ever comes first.

If a project begins operating in less than five years after being licensed, time remaining within the five-year construction period can be added onto the period of tax exemption.

If construction exceeds five years, the tax holiday will be shortened by the extra time spent on construction.

The state minister of investment/chairman of the Investment Coordinating Board (BKPM) has the authority to grant tax breaks to domestic and foreign investment projects licensed by BKPM.

Tax holidays for domestic investment projects licensed by agencies other than BKPM are awarded at the discretion of the minister of finance.

The decree stipulates that tax exemptions should be awarded on the basis of recommendations made by the Team for the Assessment of Tax Incentives for Certain Industries.

Categories of chemical and pharmaceutical industries entitled to the new exemptions includes olefins and aromatics, phenol, butadiene, caprolactam, polycarbonate resin, methyl tertiary butyl, phenacetine, antibiotics, antipyrene and aminopyridine.

Only oil refineries outside Java and Bali are entitled to the tax breaks. (das)