T

he amendment of the value added tax (VAT) and luxury tax law, which highlights changes aimed to protect low-income consumers, as well as bolster competitiveness and investment, was endorsed Wednesday.

The law, effective as of April 1, 2010, includes an increase in the ceiling rate of luxury tax to 200 percent, from the existing 75 percent, to control the consumption of luxury goods, while balancing the tax rates imposed on low and high-income consumers.

The floor rate of luxury tax will remain at 10 percent.

The law stipulates that luxurious goods are defined as goods that are not considered staple necessities.

These normative terms will be detailed by the government, through implementing regulations that will determine which goods will be categorized as luxury products.

These regulations must be issued seven months before the law is effective next April.

While the rate of VAT is maintained at 10 percent, the government will be able to change the rate to between 5 to 15 percent based on economic developments, but any change must be discussed with the House of Representatives.

Vera Febyanthy, who headed the working committee designing the VAT and luxury tax law, said the government would need to consult with the House to ensure they would not burden businesses or the public.

Lawmaker Dradjad H. Wibowo said: "Basically, we have created a legal basis. Now we just have to wait for government regulations *that will accommodate the bill*."

Finance Minister Sri Mulyani Indrawati said the law would simplify tax administrations, provide legal certainties and boost competitiveness.

Several key points in the bill will cover tax refunds for foreign tourists, tax exemptions for staple foods, the transfer of goods during a merger and the acquisition or split of companies, as well as the transfer of goods in a sharia-compliant agreement.

"The government truly realizes the changes mentioned above are needed to create a better and more competitive economy in the medium and long-term," said Mulyani.

The Indonesian Chamber of Commerce and Industry (Kadin) welcomed the law, saying it had accommodated most of its requests.

"It is in line with existing laws. What we need to monitor now are the government regulations that will facilitate the bill," said Hariyadi Sukamdani, Kadin's deputy chairman of fiscal policy, taxation and customs.

He praised the efforts of the House and the government to eliminate double taxation im-posed on some objects, including mining commodities and food and beverages served in hotels and restaurants.

Hariyadi said he did not expect there would be any government regulations that failed to capture phrases stated in the law. For instance, VAT refunds that can be requested by the end of the year.

Key changes in the law: