Tax office warns of higher losses from tax-break plan

Tax office warns of higher losses from tax-break plan

Rendi A. Witular, The Jakarta Post, Jakarta

The Directorate General of Taxation warned that the potential tax
revenue losses from the finance ministry's new tax-break plan
could be much greater than the estimate made by the ministry, a
tax official said on Wednesday.

Under the plan, the import of certain capital goods and raw
materials for the agricultural, fisheries, forestry and animal
husbandry sectors would be exempted from value added tax (VAT), a
move that is supposed to help ailing local industries and push
new investment. According to a draft of the policy, the
government would lose about Rp 1 trillion (US$113 million) in
potential VAT revenue.

But the senior tax official, who requested anonymity, said the
losses could well reach Rp 6 trillion or 7.5 percent of this
year's total VAT target of Rp 80 trillion.

The International Monetary Fund (IMF), which is supervising
the country's economic reform programs, is also questioning the
planned policy.

The official said that the IMF office in Jakarta, which was
yet not aware about the plan, called up the directorate on
Wednesday morning seeking clarification and what impact it would
have on tax revenue.

Director General of Taxation Hadi Purnomo said it was still
too early to make the exact calculation.

"We are still calculating the tax losses, the figure that you
just mentioned is still a rough one," he said on the sidelines of
a gathering.

One legislator said earlier that the House of Representatives'
state budget commission had basically agreed to the plan. He said
the House was expected to officially endorse it early next month.
It is still not clear, however, whether the legislators had been
informed of the greater potential losses.

Some industry leaders are also not happy with the new stimulus
package plan.

Sofjan Wanandi, chairman of the National Economic Recovery
Committee (KPEN), said the government had missed the real
problems because the items to be exempted from VAT were not those
demanded by the business sector.

He said the tax-break facility should be first directed
towards labor-intensive export industries such as textiles,
footwear, food and forestry, many of which were on the brink of
bankruptcy amid tighter competition in the shrinking overseas
market.

Forestry Industry Revitalization Agency chairman Soewarni also
expressed disappointment on the proposed tax breaks as it failed
to accommodate the real needs of the local timber-related
industries.

She said the ailing forestry industry needed tax exemption for
imported logs to maintain competitiveness of their products in
the export market following the shortage of raw materials at home
due to the government's policy to curtail the supply of timber to
only 6.8 million cubic meters from 12 million last year.

If realized, the new tax-break facility will be the second
fiscal-stimulus package introduced this year.

In January, the government launched its first package worth Rp
6 trillion. The government at the time eliminated and cut luxury
tax on 45 product items, mainly electronics, to help
manufacturers reduce their prices, thus enabling people to buy
their products at more affordable prices and help discourage the
smuggling of overseas products.