67 foreign companies may soon quit Batam

At least 67 foreign companies operating on Batam Island might soon leave the island following the government's decision to remove tax incentives given to investors on the industrial bonded zone beginning this month, Bisnis Indonesia reported on Wednesday.

Asman Abnur, the head of the local chapter of the Indonesian Commerce and Industry (Kadin) told the daily that most of them planned to relocate their offices and operations to neighboring Singapore and other ASEAN countries.

"Most of the 67 companies were involved oil and gas-related activities," he said, adding that the 67 companies would follow PT Unocal, PT Natuna and PT Seagate, which had earlier expressed their withdrawals from the industrial bonded zone.

Asman said that the government's decision to impose Valued Added Tax, and Sales Tax on Luxury Goods beginning April 1 is the main reason of the foreign companies' exodus from Batam, the country's largest industrial bonded zone.

Under the new tax regulation, companies operating on the island, which was previously exempted from such tax payment as incentives to lure foreign investors, are allowed to ask for refunds from the tax payment if goods they imported were used for export-oriented activities. The 10 percent Valued Added Tax is imposed on the purchases of products from domestic markets while the luxury taxes are mostly imposed on imports of capital goods or other products.

According to Asman, with the new taxes, production costs in Batam are much higher even with companies operating other ASEAN countries.

Thousands of workers, and businessmen on Monday took to street to protest the taxes and demanded the government to cancel them. They said that the imposition of the taxes made Batam no longer active to foreign investors. (*)