Urip Hudiono, The Jakarta Post, Jakarta
After a central banker said that at least eight of the country's banks are currently contemplating mergers and acquisitions (M&As), a senior tax official has warned that there will have to be a quid pro quo first if they want avail of tax facilities.
Bank Indonesia Deputy Governor Muliaman D. Hadad said Thursday that a total of eight banks were considering mergers so as to comply with the central bank's blueprint for the sector, which states that banks with less than Rp 80 billion in capital should merge with other banks this year.
Regarding incentives, however, the Finance Ministry's director general of taxation, Darmin Nasution, said that any fiscal incentives, such as a reduction in corporation tax to less than 10 percent for M&A banks as requested by the industry, would only be extended if the banks committed themselves to greater lending.
The tax service is currently discussing the issue with the central bank, which has been encouraging banks to seek new investors, or merge with or acquire other banks so as to meet a minimum capital requirement of Rp 80 billion (US$8.8 million) by the end of this year, and Rp 100 billion by the beginning of 2010.
""We're always open to discussion about tax incentives (for bank M&As), but there has to be give and take, especially on issues such as increased lending,"" Darmin said at a banking seminar Thursday.
""What we're asking for is only reasonable and fair, and will help create a healthier banking and financial sector.""
Darmin recalled how during the 1997-1998 crisis the government had reduced the corporation tax rate for merged banks from 30 to 10 percent so as to reduce costs against a backdrop of virtual economic collapse.
But now, with the sector having recovered, and with the country's economy needing a boost in the form of more investment, including higher bank lending, it would only be fair to link similar tax incentives with a requirement that the merged banks increase their loan-to-deposit ratios (LDR).
Higher LDRs should translate into more lending for business expansion and growth in the real sector, Darmin said, which would in turn mean higher tax revenues.
""We have to be certain that bank M&As actually lead to higher LDRs and more tax revenues,"" Darmin said. ""If not, then let the smaller banks be, as long as their LDRs are high.""
Banks planning on M&As have been asking for tax relief, arguing any asset transfers would be on paper only, and would not actually give rise to taxable gains.
On the issue of information on corporate borrowers, an area in which the tax service has long been demanding that the banks improve, Darmin explained that the relevant BI regulation only required the banks to inform the tax service that they had submitted the financial reports of their borrowers to the central bank.
While Darmin admitted that this was intended to prevent extortion by tax officials, what often happened was that corporate borrowers submitted different sets of financial reports to the tax service in order to conceal the true state of their businesses.
""What we are suggesting is that a new regulation be issued that could, perhaps, link tax relief for the merged banks with a requirement for them to submit the correct financial reports of their borrowers to the tax service so that we can improve tax collection,"" he said.
Elsewhere, Hadad said the central bank would discuss the question of tax relief with the tax service.
""Tax relief might not only take the form of lower tax rates, but perhaps a temporary deferment of tax payments after M&As have been completed,"" he said.
