I

ndonesia plans to introduce a "tax refund" scheme for foreign tourists shopping here as early as next year, as stipulated under the amendment of the existing law on value-added tax and luxury tax, the House of Representatives says.

The government and House have agreed to approve the tax refund scheme in a bid to attract more tourists to come shopping here, which would eventually help increase the country's foreign exchange income, Vera Febyanthy, head of the House's working committee on the law amendment, said Tuesday.

Singapore and Malaysia have already applied a similar tax refund scheme.

Indonesia may start introducing the tax refund scheme as soon as 2010 as the bill on value-added tax and luxury tax is expected to be endorsed this year, having been first discussed in mid-2008 at the House.

"We have approved the tax refund (scheme).

"It will be applied to foreign tourists coming via air only, not including sea or land," said Vera, adding that the details of the tax refund mechanism would be elaborated later via government regulations.

The Finance Ministry's directorate general of taxation will need to cooperate with the Law and Human Rights Ministry's directorate general of immigration for the implementations of the refund mechanism.

Vera also said the House and the government had yet to agree on the minimum amount of purchases that would be eligible for the tax refund scheme.

"The government proposes a total purchase of at least Rp 5 million (US$498.5)," Vera said, but lawmakers are seeking a lower figure.

As a comparison, in Singapore, a tourist is eligible for a tax refund if he/she spends a minimum of S$100 (US$69.33) at a participating retail shop on a single day, according to the Singapore Customs website.

The tourist can accumulate up to three receipts on same day purchases from the same retailer to meet the S$100 threshold.

Retail expert Handaka Santosa said that, while it was good news, the government and the House had been "very slow" in deliberating the bill on value-added tax and luxury tax to anticipate the level of global competition in attracting tourists.

"While (the benefit of) the tax refund may be small, the psychological effect is good; it will encourage tourists to shop here," he said.

"Now, for the same items, tourists who travel Southeast Asia won't buy the items here, but in Singapore or Malaysia as they are cheaper there."

Handaka added that the government and the House should consider decreasing the currently high luxury tax imposed on hand-carried luxurious items, such as watches and handbags, as the tax made the luxurious items far more expensive than those in neighboring countries.