Tax incentives sought for companies

The Jakarta Post, Jakarta

Tax incentives are one of the most feasible government policies to encourage more organizations and corporations to get involved in community development programs and support further sustainable development, a United Nations' special envoy says.

"The reality is that several non-governmental organizations and corporations have performed services that should have been provided by the government with tax revenue," UN Special Ambassador for the Millennium Development Goals (MDG) for Asia and Pacific Erna Witoelar said during a seminar on Thursday.

"The government should show their appreciation by providing various incentives, including tax reforms."

She suggested that Indonesia follow the example set by other countries that have provisions in their tax laws that allowed companies to deduct costs associated with environmental and community development programs from their taxable income.

Under the MDG, Indonesia is seeking to halve the number of people living below the poverty line by 2015.

The draft of an amendment to the tax law, which is being finalized by the Ministry of Finance, introduces new allowances for deductions on taxable income in six areas: community development programs, mining costs, currency losses, special loan provisions, scholarships and charitable contributions for natural disasters.

Under the existing tax law, corporations are only able to deduct direct business-related expenses.

The chief of the ministry's corporate income tax section, Danny Sirait, however, said that it would be difficult to implement such incentives.

"The problem is how to verify that the funds are used for community development projects," he said.

He said that because of this it would be better if the government continued to collect and use the funds instead of handing money over to the private sector through tax incentives.

"Who do you trust more, the government or the private sector? Obviously the government," he asserted.

He added that corporations should not need any tax incentives to carry out community development programs.

"If corporations want to help the community, they are free to do so," he said. "However, they should still pay full taxes. They shouldn't enjoy state money by asking for incentives."

Erna insisted that verification of the expenses for various community development projects could be conducted by an independent party.

"A third party, such as a public accountant, should verify whether the corporations were using the funds for their intended purposes," she said.

Golkar Party legislator, Harry Azhar Azis, agreed with Erna, saying corporations that allocated part of their revenues for social interests deserved incentives in the form of tax deductions.

"We should have a tax deductible scheme," said Harry, who sits on Commission XI for banking and finance. "The amendment must have these provisions."

He said that his party, which holds the most House of Representatives seats, would fully support the tax deduction provisions.

He said that the provisions were needed partly because the current system did not ensure transparency on how taxes were calculated and distributed.

"The government is incompetent when it comes to allocating tax revenue to those who need it," he said. "That's why the money (for corporate community development programs) should no longer go to the tax office."