Government ‘seriously considering’ tax holidays
Mustaqim Adamrah , The Jakarta Post , Jakarta | Thu, 02/18/2010 11:56 AM | Business
The government is making a serious evaluation on the need to provide tax holidays to attract more investment, which would require an amendment to the income tax law, ministers said.
Coordinating Economic Minister Hatta Rajasa told reporters Wednesday that the government acknowledged the reasoning behind the need for tax incentives to encourage domestic and foreign investment, particularly in less developed areas such as eastern Indonesia .
“A serious study is needed on this matter. We haven’t decided yes or no,” Hatta said after a meeting with Industry Ministry officials.
Hatta added the government was factoring all elements that could help accelerate economic growth.
Industry Minister Mohamad S. Hidayat said he had proposed the tax holiday scheme to the Finance Ministry.
“Tax holidays should be considered as incentives, [as long as they came] with the right strategy and regulations,” Hidayat said.
The government has applied tax holidays in the past but abolished them in 1983, following the enactment of a new tax law. Since then, the finance ministry has resorted to various policy measures to improve the investment climate, including tax exemptions on import duties for specific goods and raw materials for manufacturing industries.
Hidayat acknowledged that the finance ministry was wary of a possible decrease in government revenue from taxes. However, he said, increased capital inflows and exports would accelerate growth, leading to additional revenues.
The Indonesian Chamber of Commerce and Industry (Kadin) said last year in its road map that the country needed between Rp 2,855 trillion (US$308.34 billion) and Rp 2,910 trillion in total investment annually between 2010 and 2014 for all sectors and from all sources.
Kadin recently revised its economic growth estimates to between 5.4 and 6.5 percent, higher than previous estimates of 5.4 to 5.9 percent, on the back of economic recovery.
