Govt mulls alternatives to tax holidays

The government may provide different incentives rather than tax holidays — as proposed by the Industry Ministry — to attract more investment into Indonesia, the Finance Ministry has said.

A tax holiday is a temporary reduction or derogation from tax, given as an incentive to businesses.

“We will scrutinize [the proposal]. But in the law [on income tax] we don’t recognize tax holidays” Finance Ministry Head of Fiscal Policy Anggito Abimanyu said Thursday, adding that a tax holiday provision would require an amendment to the income tax law.

“We may provide other forms [of incentive] like special economic zones, which provide more than a tax holiday. But we will look at the context: What we have given to [businesses], is quite a lot already. We will see what else we can provide from the fiscal side,” he said.

Industry Minister Mohamad S. Hidayat said Wednesday he had proposed a tax holiday scheme to the Finance Ministry.

The government did apply tax holidays in the past, but abolished them in 1983 with the introduction of tax reform. Since then, the Finance Ministry has used various policy measures to improve the investment climate, including tax exemptions on import duties for specific goods and raw materials used by manufacturing industries.

Hidayat said tax holidays might cause a decrease in tax revenues. But he said this would be compensated for by increasing capital inflows and exports, which would accelerate economic growth and lead to additional revenues.

The National Development Planning Agency says Indonesia needs nearly Rp 2,000 trillion (US$214 billion) between 2010 and 2014 to accelerate infrastructure projects to reach 7 percent growth by 2014.

Natsir Mansyur, chairman of the working team on the acceleration of domestic product usage at the Indonesian Chamber of Commerce and Industry (Kadin), said tax holidays might benefit businesses, but suggested central government should encourage the purchase of domestic products for procurement.

“That will help develop domestic industries. Government spending is a guaranteed market,” he said, adding that industries can produce more goods if supply meets demand.

penulis: Aditya Suharmoko

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