Tax office reviewing VAT, luxury tax policy

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.