PT Samsung Electronics Indonesia is now discussing the possibility of investing in Indonesia, including building a phone-manufacturing plant, after a top Indonesian minister offered incentives to the South Korean company.

'€œTalks are ongoing at head office and everything is still being discussed,'€ said Samsung Electronics Indonesia vice president Lee Kang Hyun.

Lee'€™s statement came in response to an offer made by Coordinating Economic Minister Chairul Tanjung, who said the Indonesian government would give incentives to the phone manufacturer if the company made Southeast Asia'€™s largest economy its phone production hub.

However, Samsung has reportedly started to finalize an investment deal with Vietnam, in order to make the country its production hub in Southeast Asia.

According to Lee, Samsung'€™s plans to invest in Vietnam were not made recently, but have been under consideration for some time.

Chairul made the pledge at an Indonesian Employers Association (Apindo) conference on Wednesday, saying Indonesia is a huge cell phone market due to its large population.

'€œIf Samsung was to invest in building a factory in Indonesia, then I [will] uphold the proposed incentives,'€ Chairul said.

The minister added that the government has not made any final decisions over the implementation of the 20-percent luxury items tax, which was put forward at the beginning of 2014. The tax is aimed at spurring growth in domestic industries.

If the luxury tax proposal is accepted, the 20-percent tax will affect smartphones that are priced above Rp 5 million (US$429.83) per unit. At present, domestic manufacturers mostly make medium- and low-end cell phones and source a wide array of components through imports.

In addition, Lee said that one of the reasons Samsung might choose investing in Vietnam over Indonesia was because the Vietnamese government offered a tax holiday incentive that would last for up to 30 years, which would eliminate the company'€™s obligation to pay income taxes.

'€œIndonesia'€™s tax holiday only lasts for a maximum of 10 years,'€ Lee said, as quoted by Antara news agency.

In Indonesia, an investor must invest Rp 1 trillion or more in order to receive a tax holiday, according to Finance Ministry regulation No. 130/2011 on the provision of tax holidays and reduction facilities.

The presence of production factories would also mean that Indonesia could lessen its imports of cell phones.

Cell phone manufacturers have previously urged the government to scrap its plans to introduce a 20-percent sales tax, amid concerns that such a policy may cause a surge in illegal imports.

Hasan Aula, chairman of the Indonesian Cellular Phone Association (APSI), which represents cell phone manufacturers and distributors, said the tax would immediately result in higher phone prices, as vendors would pass on the costs incurred by the tax to customers.

'€œA significant price gap between legally imported phones and illegally imported ones will inevitably stimulate the growth of a black market,'€ Hasan said.

Meanwhile, Usun Pringgodigdo, head of APSI'€™s technology division, criticized the '€œtax policy'€, saying it would be ineffective in fostering growth in the local cell phone industry.

Instead of imposing a tax on cell phones, he said, the government should combat illegal imports, which discourage investors from establishing manufacturing facilities in the country. (dyl)

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