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.