Jakarta, June 16, 2010 – The country’s tax law should be amended to provide a legal basis for tax holidays for investors, Fianance Minister Agus Martowardjojo said. Agus has said he supports offering tax incentives to attract investment and accelerate development. A tax holiday is a temporary suspension of tax on certain forms of direct investment. Its purpose is to reach the country’s ambitious goal of attracting Rp 2,000 trillion in investment per year over the next five years, the Finance Ministry said. Tax holidays are nothing new to Indonesia. The government offered the incentive in 1967, suspending tax on foreign direct investment as the country started opening its economy to the West, but it met with limited success and was dropped from the tax code in 1984. Ministers believe that today’s more stable economic climate, however, will lead to a better outcome this time around. Request from the private sector to include a tax holiday in the 2009 law fell short. According to the tax code, any activity that generates revenue in subject to taxation, but officials that support the tax break are pushing to change that by revising the law. If the tax holiday were implemented correctly, Agus added, the increase in investment would counterbalance any loss of revenue. BKPM chairman, Gita Wirjawan said he believes that the duration of any tax holiday should be no longer than five years. For its part, the government is giving off signals that it might be ready to make the tax holiday a reality soon. “If this is actualized, the Rp 2,000 trilluon target will be much easier to achieve,” Gita added. Irvan Tisnabudi and Muhamad Al Azhari was reported for Jakarta Globe.

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