Local Batam businesspeople are questioning just how serious the government is about developing Batam into a free trade zone (FTZ).
Government regulations making four commodities subject to value-added tax and luxury tax is proof the central government is half-hearted about making the region an FTZ, the Riau Islands chapter of the Indonesian Employers Association (Apindo) said.
The government has designated Batam, Bintan and Karimun islands as an Indonesian special economic zone (KEKI).
But taxes on electronics, liquor, vehicles and cigarettes mean the Batam region has no special privileges setting it apart from other regions, Apindo chapter chairman Abidin told The Jakarta Post on Monday.
"The regulation should be annulled as soon as possible as it is contradictory. On the one hand Batam is meant to be an FTZ but on the other hand the government is taxing several goods," he said.
"This does not benefit businesspeople."
Abidin said President Susilo Bambang Yudhoyono should revoke the regulation as it did not give any incentives to investors.
"Labor wages in Batam are near US$100 per month, which is much higher than $60 in Vietnam or India with just $30 per month," he said.
"This shows that Batam is no longer competitive based on labor wages."
Abidin said larger tax breaks should be given to investors as a tax-free Batam would be attractive to large investors.
"Although there is already a law on the Batam, Bintan and Karimun FTZ, the implementation is still too slow," he said.
"The authorities are still fussing about who will be on the management board instead of setting investment plans."
According to Abidin, investors such as Motorola and Seagate have chosen to invest in the Iskandar Development Region in the Malaysian state of Johor instead of in Batam.
Riau Islands Governor Ismeth Abdullah, who is chairman of the Regional Council, said he had urged the Finance Ministry to revoke the taxation regulation to avoid overlapping laws.
"We have conveyed this to the finance minister and if she does not listen, we will report this issue to the President so he can see this in a wider perspective," he said.
Ismeth, also chairman of the Batam Industrial Development Authority, is optimistic that Batam with its special status could attract more and larger foreign investment.
The governor gave the example of Italian-based Saipem SpA shipyard, which is operating in Karimun with an investment of Rp 2.5 trillion ($271.73 million) and employing 5,000 workers.
Ismeth said the provincial administration had set a target of attracting $7 billion in investment for Batam, Bintan and Karimun over the next five years.
