Tuesday February 9, 2010

Indonesian state, listed firms among top tax dodgers

By Sunanda Creagh

JAKARTA (Reuters) - Indonesia's 100 worst tax dodgers, including state and private firms, owed almost $1.9 billion in 2009, tax office data showed, highlighting the difficulty of collecting revenues and the burden on government finances.

Indonesia's finance ministry has undergone sweeping reforms of the tax and customs departments in order to improve collection of state revenues and potentially reduce the government's dependence on the domestic and international bond markets.

"Tax revenue in Indonesia should be four or five times larger than it is," said James Bryson, a Jakarta-based fund manager at HB Capital, adding that effective tax collection "would mean the government has to raise significantly less debt in its budget and it would make an already healthy balance sheet look even better."

Bryson said that if the 100 companies on the list paid the $1.9 billion tax owed, Indonesia would be able to cut the size of its planned 2010 bond issuance by around 10 percent.

The finance ministry planned to raise 175.1 trillion rupiah ($18.7 billion) of debt this year to repay maturing bonds and help plug a budget deficit seen at 1.6 percent of GDP.

Tax evasion remains rife, despite reforms, prompting the tax office to decide on a "name and shame" policy whereby parliament was last month presented with a list of the 100 companies with the biggest tax debts.

State-owned oil and gas firm Pertamina and carrier Garuda Airlines, as well as private-sector firm Kaltim Prima Coal (KPC), a unit of listed coal miner Bumi Resources are among those named, according to a copy of the tax document with Reuters.

Bumi is controlled by businessman and politician Aburizal Bakrie, who heads the Golkar Party and is considered an opponent of Finance Minister Sri Mulyani Indrawati's reform drive.

Golkar, an important constituent of the ruling coalition, has pushed for the suspension or removal of Indrawati, a technocrat and former International Monetary Fund executive whose policies and reforms have significantly raised Indonesia's profile with international investors.

A South Jakarta court on Tuesday threw out an application by KPC to stop a tax office investigation into its alleged tax debt. The firm had accused the tax office of breaching finance ministry rules on tax investigations.

Aji Wijaya, legal advisor to KPC, said on Tuesday that the firm was considering appealing.

"It is not the right decision. Justice is not blind. Today, the court (endorsed) abuse of power by the authorities. KPC is prepared to take any legal action to claim legal certainty," he told Reuters in a telephone text message.

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Pertamina and airline Garuda, which is being prepared for an initial public offering this year, as well as several other state-owned enterprises ranked among the worst tax dodgers.

Said Didu, secretary to the state-owned enterprises minister, said the tax debt from state-owned firms was 100 billion rupiah, not over 7 trillion rupiah as reported by the tax office. Some of the alleged indebted tax was subject to a legal appeal by several state-owned firms, he said.

"There's no obligation until a verdict is out. You cannot say there is indebted tax until there is a binding legal decision," he said.

U.S. mining giant Freeport-McMoRan Copper and Gold Inc paid $1.4 billion in taxes and royalties in 2009, according to a statement released by the firm on Monday, making them one of the biggest tax payers in Indonesia.

The tax document, dated January 28, said companies on the list owe the state a total of 17.5 trillion rupiah but did not disclose the tax debts of the individual companies or say if the list was in order of debt size.

Tax office spokesman Djoko Slamet said some of the companies on the list may have paid all or part of their tax debt since the list was compiled late last month but could not say which ones.

"The debt is still there," he told Reuters.

The document, which was presented to parliament in late January, said that Indonesia's projected real non-oil and gas tax collection in 2010 would be 593,371.65 billion rupiah ($63.25 billion), up 15 percent from last year.

The report said that the tax office would aim to increase the tax take by focusing on the mining and plantation sectors and broadening its tax education programme.

(Additional reporting by Andreas Ismar; Editing by Sara Webb)

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