Indonesian president not against tax holidays: investment chief

Indonesian President Megawati Sukarnoputri is not opposed the use of tax holidays to draw investment into the country, Investment Coordination Agency chief Theo Tumion said on Monday.

"The president agreed on tax holidays to encourage investment," the detikcom online news service quoted Tumion as saying after he met the president. The Indonesian government scrapped tax holidays, used as an incentive to attract foreign companies to set up in the country, in late 1994.

It reinstalled limited tax holidays in 1996 until the government of President Abdurrahman Wahid scrapped this in 2000. But falling investment since the 1997-1998 Asian financial crisis has forced the tax holiday option back on the agenda.

Opponents to the tax holiday option say it could undermine state earnings and instead argue that a secure policy and investment environment are needed to attract investment. Tumion said that with the imposition of tax holidays, the government could still offset losses through other taxes.

He added the government would further enhance investment by treating domestic and foreign companies equally in legal terms. "There will be equal treatment for foreign and domestic companies and therefore the investment climate is hoped to become more competitive," Tumion said.

The government was also mulling opening sectors previously closed to foreign investment, he added without elaborating. Jakarta has already opened three of the previously closed sectors -- the hospital, education and media sectors -- to limited foreign investment.