Tax Machinations

Cheating on tax is not restricted to Indonesian businesses, as a number of foreign capital investment businesses (PMAs) are also apparently involved. About 70 percent of the 4,850 foreign businesses registered as taxpayers did not pay any taxes in 2001.

Capital Investment Supervisory Agency head Theo Toemion said last week that he suspects these businesses are carrying out transfer pricing by preparing financial reports that make it appear as if they are making a loss. As a result, they have no obligation to pay any taxes. Current laws and regulations provide a five-year tax holiday as compensation for businesses that are losing money.

Director General of Taxation Hadi Poernomo has already asked for foreign businesses to be investigated. His office is also collaborating with foreign tax institutions to look into these practices. As of now, they have yet to find concrete proof of transfer pricing, which is certainly not easy to uncover. These companies’ losses, they claim, are mostly because of exchange rate differences, miscalculations, and inefficiency.

IM3 Merges with Parent Firm

United we stand, the saying goes. Hence, Satelindo and IM3 (Indosat Multi-Media Mobile) have merged with their parent company, PT Indonesia Satelit (Indosat). This vertical merger is to reduce costs and work duplications. It is also to increase the customer base and competitiveness of the Indosat group. Indosat Managing Director Widya Purnama says that this “marriage” could save 20 percent on capital goods expenditure and 15 percent on operational expenditure in the next five years. The merger will not result in a reduction of services, he said. Satelindo’s products such as Matrix and Mentari, and IM3’s Smart and Bright, for instance, will continue.

Indosat’s cellular customers totaled 2.6 million at the end of the first half of this year. Satelindo contributed 2.254 million and IM3 360,000. By year’s end, the total number of customers of the two is predicted to exceed 3.5 million, placing Indosat Group at No. 2 after Telkomsel.

IBRA Selling off Again

After seeing off hundreds of trillions in loan assets, the Indonesian Bank Restructuring Agency (IBRA) will again hold a big “sale”. This time is will sell off property worth Rp681 billion and the plan is to sell the assets in the middle of this month. IBRA’s deputy head of Loan Assets Management, Mohammad Syahrial, says that the largest assets are in Jakarta and are valued at Rp533.9 billion. The remainder is spread throughout the country, with major assets located in Semarang, Bandung, Surabaya, and Denpasar. They include apartments, buildings, warehouses, kiosks, factory buildings, shop-houses, houses, and land.

Syahrial says that the disposal model will be the same as for the loan assets, ie, outright sale. In other words, they will be sold “as is” and the sale will not go through an auctioneer. He also stressed that IBRA debtors may not purchase these assets unless they had already paid off their debts. The families of IBRA employees such as children, wives, and parents should also not try to submit any offers because they would be rejected.

Syahrial was not prepared to divulge an exact target figure but would only say that there was no way it would be below 20 percent of the sale value.

Nursalim, Salim Squared Away?

Conglomerate bosses Itjih Nursalim and Anthony Salim met the head of IBRA, Syafruddin Temenggung, last week. This was the second meeting for them. The outcome? Both agreed to pay out their remaining obligations to the state.

Nursalim is prepared to pay his initial obligation of Rp1 trillion of the total of Rp28.4 trillion owed using cash and assets. The owner of the Gajah Tunggal Group will pay up to Rp250 billion in cash. The remainder may be in the form of liquid assets. The general total of all the debts will be paid off by the tire king before the end of October. As for Anthony Salim, he promised he would pay the remainder of his miscalculation of Rp729.4 billion by the end of August.

Deputy Attorney General for Special Crimes Haryadi Widiyasa says that the fate of Nursalim and those implicated in the Bank Indonesia Liquidity Assistance funds will be determined by the end of the year. This is because IBRA has given them until November to pay back 30 percent of their obligations. If by then they have not paid, their files will be handed over to the courts.

Another Merger, More Burdens

Five more banks are to be merged: Bank Bali, Bank Universal, Bank Prima Express, Bank Patriot, and Bank Artamedia. However, the costs of the merger are likely to be astronomical. IBRA’s bank restructuring head, I Nyoman Sender, says that the funds needed are Rp4-4.5 trillion. The cost includes staff termination payments.

This has blown out from the calculations of the Financial Sector Policy Committee which put the cost at Rp3-4 trillion. If the banks had to be closed, the financing needed would be higher—Rp6 trillion. The blowout, Sender says, is because the banks’ conditions have continued to worsen. Four of them have been hemorrhaging because their interest revenue is less than the cost of interest paid out. IBRA cannot take out the money from the assets sale because this will reduce its contribution to the state. Its stock of bonds is already low, with only Rp1.8 trillion left after Rp4.8 trillion was used up for Bank Internasional Indonesia.

A member of the House of Representatives (DPR) commission IX, Faisal Baasir, says the House will reject the merger if its cost is too much of a burden to the state. The DPR was to query the merger at a working meeting with IBRA on September 2. IBRA maintains that Bank Bali is essentially sound. Why then, does it need to be merged?

Diesel Scarce in Central Java

Long queues for diesel have become an everyday sight in several areas of Central Java since the middle of August. This is because supply from Pertamina Marketing Unit IV Central Java/Yogyakarta to all petrol stations in the area has been reduced. This scarcity, says I Gusti Bagus Wisnu, head of public relations for Marketing Unit IV, is because Pertamina is controlling supplies of subsidized diesel to the public.

Under government quotas, Pertamina is allocated 2.2 million kiloliters this year. By August, though, the allocation had already reached 65.7 percent, whereas it ought only to have been at 58 percent. If this is not controlled, there is concern that the quota may be inadequate, so Pertamina has reduced supplies by 50 percent. The price of subsidized diesel, especially for transportation, is Rp1,325 a liter, while that for industry is Rp1,760 a liter.

But a member of the Central Java legislative council, Sutoyo Abadi, suspects that this scarcity of diesel is a result of abuse by certain parties. The diesel for transportation is being channeled to industry. The objective is to reap a profit from the price difference of Rp435 a liter.

From Jakarta, Minister of mines & Energy Purnomo Yusgiantoro commented that the shortfall has been engineered to put the brakes on the subsidy. But, because supplies are still lacking, Pertamina has been asked to boost availability.

Discount for SMEs Announced

The good news finally arrived. Small- and Medium-Sized Enterprises (SMEs) have now got a 25 percent discount on their debt principal, plus the wiping out of interest and fines, determined in the Implementation Directive on Presidential Decree Number 56/2002 on Restructuring SME Loans. The government’s decision, issued August 30, says that this discount is only to be given to those that have paid cash or paid installments by 29 January 2003, at the latest.

Presidential Decree 56/2002 itself, which is taken as a reference, does not mention the size of the discount. Initially, many people were hoping for 30 percent. Even though this is not so, the news was welcomed by SMEs with debts below Rp5 billion. From the government’s available data, the current total debt of SMEs to be restructured has hit Rp21.9 trillion. Part of this is owed to Bank Mandiri (Rp7.2 trillion), non-state owned banks (Rp4.8 trillion), and IBRA (Rp3.1 trillion). “Those who don’t join this program will only get a cancellation of their interest and fines, together with having their principal repayment extended until July 29, 2004,” said Alimarwan Hanan, State Minister for Cooperatives and Small/Medium-Sized Enterprises.

Electricity Bill Passes Scrutiny

The Electricity Bill has been approved by the House of Representatives mining and energy commission. There was unanimous agreement on the whole legislation, so the bill will be sent to a plenary session of the DPR. The commission took the decision on August 27. The basic change in the Indonesian electricity system is the opening up of the electricity supply monopoly that has until now been controlled by the State Electricity Company (PLN). Later, other state-owned businesses, local government-owned businesses, cooperatives, or the private sector may take part in the generation and sale of electricity

Nevertheless, free competition will not come into effect throughout Indonesia, as reportedly it will only apply in Java and Bali. Outside those areas, all segments will still be controlled by PLN. Under the law, only the generation and sale of low voltage electricity will be competed for, while high and medium voltage supply will still be held by PLN. What is more important is that the government must still guarantee the provision of electricity for disadvantaged consumers, as well as isolated areas and villages.