New investments in five pioneer industries will receive a tax holiday facility for up to 10 years, according to regulations on investment incentives issued by the government recently.
The break would be given to companies producing 87 product items, which comprise 35 base metal products, 21 petrochemical products, 17 machinery items, 10 renewable energy products and four types of communication equipment, under the base metals, oil refining and basic petrochemicals, machinery, renewable energy and telecommunication equipment industries, Industry Climate and Quality Policy Board chief Aryanto Sagala said in Jakarta on Thursday.
“The products receiving tax facilities were chosen after a thorough assessment especially related to their supply and demand,” Aryanto told reporters during a press briefing on the facility at the Industry Ministry office.
In the long-awaited move, last week the industry minister and Investment Coordinating Board chief (BKPM) issued decrees providing detailed information on the tax cuts for big investments in manufacturing projects.
The decrees stipulated the implementation of the tax incentive scheme that had been announced in August, which offers an income tax holiday to companies involved in the five pioneer industries.
To be eligible for the facility, the companies need to have invested at least Rp1 trillion (US$110 million) and placed at least 10% of this amount in local banks.
Aryanto said the tax facility could be applied only until 2014. Those companies for which the facility was approved would be exempted from paying income tax for 10 years after they commenced commercial operation.
The duration of the tax holiday package for certain companies such as those willing to build infrastructure in surrounding areas of their investment project could be extended to 12 years.
However, in the last two years, companies would be given only a 50 percent cut to their income tax.
According to Aryanto, the implementation of the tax holiday provision would be evaluated every six months by related director generals at the Industry Ministry.
Aspects would include the realization of commercial production, tax holiday utilization, labor absorption and the use and transfer of technology.
Earlier, the Industry Ministry nominated several investment areas that could be eligible for the tax holiday, such as a $6 billion steel project in Cilegon, Banten, by Indonesia’s largest steel maker,
Krakatau Steel, and the world’s third-largest steel producer, South Korea’s Posco; an $8 billion oil refinery project in Balongan, West Java, by Kuwait Petroleum Corporation; and a $500 million heavy-equipment manufacturing project by US-owned heavy equipment producer Caterpillar Inc.
Until the third quarter of this year, investment had surged steadily to Rp181 trillion, up 20.9% from the same period last year, and inched closer to the government’s full-year target of Rp240 trillion.
Meanwhile, Investment Coordinating Board (BKPM) deputy chairman Azhar Lubis said on Thursday that both domestic and foreign companies were allowed to apply for tax breaks as long as they meet the requirements.
However, those companies that had already received a 30% tax holiday under the government’s regulation No. 62/2008 were no longer allowed to apply.
Applications for the new facility can be submitted to the BKPM or the Industry Ministry.
Once companies have completed all requirements and registered their applications, a team from BKPM or the Industry Ministry will verify all the applications and then request that each company give a presentation.
“All applications will be processed over a two-week period, and then eligible applications will be sent to the Finance Ministry for further verification by [another] committee, which should also be complete with two weeks,” Azhar said.
He said that finance minister would issue a decree for each company, and the minister would grant the tax holidays after consulting with President Susilo Bambang Yudhoyono.
Following the issuance of tax grants, each company should report their 10% investment usage and provide an audited investment realization to the taxation directorate general and the verification
“The government will terminate tax holidays if a company fails to report or if after receiving the tax break its investment drops to below Rp1 trillion,” Azhar said. (Linda Yulisman, The Jakarta Post, Jakarta)