Local taxes, levies ‘kill’ businesses

The Jakarta Post, Jakarta | Mon, 07/26/2010 9:24 AM

Bylaws and regional regulations requiring companies to pay additional taxes and various types of retribution to provincial and regional governments have severely hurt the competitiveness of domestic products.

Indonesian Employers Association deputy secretary-general Franky Sibarani said Saturday

that excessive extra costs placed an additional burden on production costs and forced businesses to increase prices.

“If our products are more expensive than imports, it’s barely possible for us to compete,” he told The Jakarta Post.

He cited several bylaws that obliged businesses to pay large taxes, such as the soil water tax

in Bali, in force since Jan. 1 this year, which went up 1,000 percent to an average of Rp 2,300 (25 US cents) per square meter.

As the consequence of the increasing tax, several large bottled water companies, which previously paid between Rp 80 million and 90 million per month, now expect to pay between Rp 800 million and Rp 900 million per month.

“One bottled water company in Bali had to decrease its export volume and relocate its production facilities to another province due to the high tax,” he said.

Apart from the soil water tax in Bali, Franky also cited the North Sumatra administration’s tax on packaged products.

“The government imposes a tax on every product that is packaged of between Rp 5 and Rp 10,” he said.

He said the excessive extra costs collected by either provincial or regional governments put off foreign investors.

Regional Autonomy Watch (KPPOD) executive director Agung Pambudhi cited Finance Ministry data that showed 36 percent of all bylaws and regional regulations on tax and retributions had to be suspended because they ran counter to the 2009 Tax and Retribution Law.

From 2001 to 2009, the organization proposed that the Home Ministry suspend 3,735 regional regulations. In response, the Home Ministry suspended 945 regulations, issued warning letters for 22 regulations and revisions for six.

In the same period, the Finance Ministry also requested the Home Ministry suspend 4,885 bylaws, but as of today, only 1,835 have been suspended.

Agung said the regulations mostly required businesses to pay exces-sive extra costs that were illegal, according to the 2009 Tax and Retribution Law.

“For instance, there are by laws in West Java, East Java and North Sumatra obliging businesses to pay distribution tax if their products are sold in other provinces,” he said.

Citing another example, he said the Lampung administration did not indicate in their bylaws clear tariffs and time limits for new businesses to make permits, although article 156 of the tax and retribution law required it.

“There are also bylaws and regional regulations that require businesses to make ‘voluntary donations’ to the administrations when processing permits,” he said.

“But the administrations specify how much firms have to pay and if they don’t pay, they don’t get the permits.”

Agung said firms exploiting natural resources were hardest hit by the business-unfriendly bylaws and regional regulations.

“They have to pay many taxes, including for heavy equipment and road lighting as well as other illegal extra costs.” (rdf)