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Tax Incentive Overhaul Expected by September

Shirley Christie | June 22, 2011

 

Jakarta, June 22, 2011 - Revised income tax incentives for investment, flagged by the government last year in a bid to attract foreign companies to Indonesia, may be complete by the end of September, a government official said.

Indra Darmawan, director of deregulation at the Investment Coordinating Board (BKPM), said on Wednesday that the government would give incentives in the form of income tax reductions to companies that intend to operate in designated industries or take their operations to less-developed regions.

“There are several sectors that have been considered for inclusion on the list of those that can receive tax incentives, including renewable energy, such as geothermal, hydro and solar power plants,” Indra said.

Under the 2008 regulation still in effect, the government provides a tax reduction for 23 specific sectors, including coal gasification projects for domestic needs, geothermal projects, iron and steel making and some ship building.

Indonesia also has granted incentives to 15 geographic regions, mostly outside Java.

Indra said companies involved in infrastructure projects, as well as those in sectors that are considered capital intensive — involving a minimum of Rp 100 billion ($11.6 million) in start-up capital and at least 100 employees — or labor intensive — involving a minimum of 300 workers and starting capital of Rp 50 billion — could apply for the tax incentive.

Companies operating in Indonesia are currently charged a tax rate of 25 percent. That is slightly lower than the rate in Thailand (30 percent) but higher than Singapore (17 percent).

Silmy Karim, an adviser to the BKPM chairman, said some investors from South Korea, Singapore and Japan were waiting for incentives, including a possible tax holiday, before establishing a presence in Indonesia.

The Finance Ministry has not indicated whether it will offer a tax holiday to new companies, though the BKPM listed pioneering industries such as base metals, refinery and coal gasification as possible candidates for a five- to eight-year tax holiday.

Posco, South Korea’s largest steel maker, signed a $6 billion deal last year with Indonesia’s state-owned Krakatau Steel and may receive a tax holiday.

“Posco will definitely be considered for a tax holiday because it will increase our steel production capacity,” Silmy said.

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