Tax office reviewing VAT, luxury tax policy

Adianto P. Simamora, The Jakarta Post, Jakarta

Director general of taxation Hadi Purnomo said on Wednesday his office was reviewing its value added tax (VAT) and luxury tax policies as it sought ways to promote investment in the country.

"We are now studying the existing tax policy, including the value added tax and luxury taxes, to find ways to stimulate the country's economy," Hadi said.

His statement comes only a week after he insisted Indonesia's tax policy was more competitive than the policies of many other countries.

There has of late been an increase in the number and intensity of calls for the tax office to review its policy, with critics slamming the existing tax policy for discouraging new investors from entering the country.

Minister of Trade and Industry Rini M. Soewandi previously proposed to the finance ministry that it drop the luxury tax on some electronics and automotive products.

The directorate general of taxation is under the finance ministry.

Rini also urged the ministry to scrap the 10 percent value added tax on some agricultural products to help boost the country's export performance.

However, the finance ministry, which is under pressure to raise money to help finance the state budget, has yet to respond to Rini's proposals.

The director of PT Samsung Indonesia, Lee Khan Hyun, told The Jakarta Post on Wednesday the government should review its VAT and luxury tax policies if it wished to attract new investment in the country's electronics industry.

"Electronics companies in Indonesia must continue to produce new items, otherwise they will be crushed by the competition. But the tax policy discourages them from doing so," Lee said.

At present, Lee added, all of the different taxes imposed on electronics goods here amounted to 52.5 percent of the value of the goods.

He said the government should cut the luxury tax and value added tax on electronics goods to below 10 percent and 5 percent, respectively.

Lee also said the government must take measures to curb the smuggling of electronics goods into the country, or more manufacturers would pull out of Indonesian because they could not compete with the cheaper smuggled goods.

"The luxury tax has hurt electronics sales in the local market because we can't compete against cheaper smuggled goods," he said, adding that the government should learn from the Sony case and improve its policies for the electronics industry.

He was referring to Japanese electronics giant Sony Corp., which recently announced it would relocate its audio plant to Malaysia next year.

According to Lee, multinational companies are primarily interested in investing in Indonesia because of the huge, largely untapped local market.

But with smuggled electronics continuing to flood into the country, the headquarters of some of the world's electronics giants have decided to delay expanding their businesses in Indonesia.