VAT and sales taxes in Batam still needed

JAKARTA (JP): Director General of Taxes Machfud Sidik said on Monday he had not received any order to cancel the government's plan to impose 10 percent value-added tax (VAT) and sales tax on luxury goods on Batam island.

Machfud said he had not been informed of any change in plans, and added that the introduction of the taxes on the island, the country's largest bonded zone, would "technically" be still needed.

"For me, we (the government) in the long term still need to impose value-added tax on Batam island," he said when asked to comment on a statement by President Abdurrahman Wahid during his visit to Riau on Saturday.

The President said he would consider canceling the plan to impose the taxes, which have been widely opposed by foreign investors on the island.

The government planned to impose a 10 percent VAT and a 10 percent to 35 percent sales tax on luxury goods on Batam, starting in April. But its implementation was delayed until June due to a widespread opposition from both the island's population and businesses.

According to Machfud, the foreign investors, who mostly operate in export-oriented businesses on the island, protested the tax plan because they received misleading information about the plan.

"Like those in other industrial bonded zones, export-oriented industries on Batam are exempt from the new tax payment", he said.

Batam has 85 export-oriented companies, mostly electronic manufacturers.

Machfud said cancellation could result in lower revenue, but if the plan was canceled he believed the government would manage to cover the lost revenue from other sources of income. (07/rei)