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Indonesia Rejects Tax Holidays To Attract Investment

Tuesday, February 23, 2010

In response to a previous suggestion that Indonesia should introduce tax holidays, Anggito Abimanyu, the head of tax policy at the Finance Ministry, said, while such a measure was not recognized under Indonesian tax law, that and other policies could still be examined, if it were felt necessary.

A tax holiday is a temporary reduction or elimination of a tax, usually to create an incentive for business investment. For example, a decrease or elimination of corporate taxes can attract foreign investment or stimulate growth in selected industries. A tax holiday is given in respect of particular activities, and sometimes also only in particular areas with a view to develop those areas.

In fact, additional Indonesian incentives were originally suggested to increase investment in the eastern regions of the country.

Abimanyu, however, pointed out that the government had already provided other measures, for example the establishment of special economic zones where companies receive reductions to income and land taxes, together with value-added tax exemptions.

He also noted that the government had already granted various tax breaks recently to particular sectors, reduced corporate income tax and given import duty subsidies. However, he did say that, if the government believed that further tax incentives were required, tax holidays could be appraised and there would also be a review of possible additional measures.