Tunky rules out tax breaks for electronics industry

JAKARTA (JP): Minister of Industry and Trade Tunky Ariwibowo has ruled out giving the electronics industry special incentives based on local content or a product's brand name, as it has done for the national automotive industry.

Tunky said yesterday such incentives were unnecessary because the domestic electronics industry was quite advanced.

"Our potential in the electronics industry can be developed optimally without the help of special means," he said during a break at a meeting of electronics industry executives.

He said if the government decided to give any special treatment to the industry, it would have to be covered by existing regulations.

"Currently I can't say whether we need such facilities. It's better if we formulate a target and see whether it fits the existing rules. If not -- but we consider the target viable and necessary -- we may think about it," he said.

Last year the government granted duty and tax breaks to local firms which make "national cars".

The cars must bear Indonesian names and have a local content of 20 percent by the end of a maker's first year of commercial operation and 60 percent by the end of the third year.

Tunky's comments implied the electronics industry had no chance of getting any special treatment.

Chairman of the Electronics Association Uripto Widjaja said the government should create a better investment climate for the electronics industry.

"Most international electronic corporations are very selective. Recently we missed the opportunity to attract a huge prospective investor which moved on to Malaysia and the Philippines where the government offered tax holidays for the industry," he said.

The electronics industry is Indonesia's third-largest export earner after textiles and wood-based commodities, but up to 80 percent of components are imported.

In 1995, component imports stood at $2.3 billion, up from $1.9 billion in 1994.

Indonesia's exports of electronic goods totaled US$2.9 billion in 1995, representing a 13.4 percent increase over the previous year's $2.6 billion.

In comparison, Malaysia's electronics exports were worth $15 billion, and Thailand's $18 billion in the same period.

The electronics industry is among 10 leading foreign exchange earners which have been given special facilities to boost Indonesia's nonoil and gas exports.

The facilities include various nontax, banking and administrative incentives.

Director General of Light Industries Firdaus Ali said by the end of the Sixth Five-Year Development Plan in 1999, export earnings from the electronics industry was targeted to be US$6.5 billion.

This is about 11 percent of the total industrial export target of $56 billion.

Firdaus said although the industry's exports were dominated by consumer electronic goods, business and industrial electronic goods and electronic components made a significant contribution to export earnings.

In 1990 business and industrial electronic goods exports were worth $50 million and electronic components $7.8 million.

In 1995 they rose to $642.6 million and $890.3 million, respectively.

Firdaus said the government's export revenue target for the electronics industry was $40 billion by the year 2006.

"For this, we will need investments of $8 billion in the next 10 years," he said.

The government would also encourage more industrial relocations, particularly by major corporations, he said.

He said consumer electronic goods would contribute $6 billion to export earnings during this period, information technology $8 billion, wireless telecommunications $4 billion, semiconductors $8 billion, home appliances $6 billion, and components and modules $8 billion.

The government also plans to establish an Indonesian Electronic Development Corporation, electronic supersites, an electronic super highway and boost investment promotion.

Tunky said research and development was important for the industry.

"The government will no longer issue protectionist measures. All competition must now be based on efficiency, which is why research and development is most important," he said. (pwn)