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Indonesia seen as taking steps to abolish shipbuilding taxes

Indonesia seen as taking steps to abolish shipbuilding taxes
Indonesia can take a shot at becoming one of the world’s leading shipbuilding nations, provided the government implements supporting policies such as the abolishment of taxes, according to Eddy Kurniawan Logam, president director of PT Logindo Samudramakmur Tbk.

The world’s largest archipelago, boosting vast lengths of coastline and untapped land areas, is a shipbuilding country in the making, according to Eddy, who is also chairing the offshore department of Indonesian Marine and Offshore Industry Association (Iperindo).

“Indonesia’s shipbuilding sector is still weak at the moment,” Eddy told Seatrade Global. At present, the Southeast Asian country produces a mere 100 ships per year, largely hindered by the high costs of production due to unfavourable tax policies. A 10% value-added tax (VAT) and 5-12% of import duties on shipbuilding components mean the country’s shipbuilding sector is in no way competitive.

Eddy pointed out that the government is expected to first abolish the 10% VAT charged on imported goods for shipbuilding. “Till today, we are waiting for the government regulation to be issued. We were earlier told that it will be issued at the end of April but we have not seen it yet,” he said.

Indonesian shipbuilders also have to bear import duties of 5-12% in order to bring foreign shipbuilding materials into the country. Iperindo is currently working with the ministry of industry to come up with a list of a few hundred shipbuilding items that are not produced locally to be exempted from import duties, for a start.

Eddy explained that when Indonesian manufacturers are able to produce the tax-exempted items within the next five years, the government can then put those items on tariffs again. “Hopefully before the end of 2015 we can get it done,” he said.

Some of the shipbuilding components that Indonesian manufacturers are looking to produce locally are in fact simple things such as marine cables and lightings. Eddy explained further that the domestic factories are actually able to produce these items, but due to the low demand, none of the factories are willing to enter this business, leading to the dearth of locally produced shipbuilding components.

“We even import anchors from China. In one year, Indonesia builds only about 100 vessels, and they require about 200 anchors in total. But if we build an anchor factory just for this demand the factory will close down in two months,” Eddy quipped.

“But in the next two to three years, if Indonesia is able to build some 1,000 vessels a year then it will make sense for the factories. We do have big factories and manufacturers but the volume has to be there,” he added.

Indonesia’s shipbuilding market is now concentrated on Batam island in Riau province, where shipyards are free from import duties and VAT due to the island’s Free Trade Zone status. But the land space on Batam is already getting squeezed and huge potential exits outside of Batam for developing the shipbuilding segment, according to Eddy.

“Basically the government needs to scrap import tax on shipbuilding components, and spread the development of shipbuilding to other parts of the country away from just Batam,” he said.

Once the tax burdens are removed, the advantage that Indonesia-based yards can be 100% foreign owned will shine through, and attract foreign investors to flock into the country to establish shipbuilding businesses, he pointed out.

Meanwhile, the Indonesian government had announced last year a shipbuilding revitalisation program involving some IDR10.8bn ($822,600) in support funds, but it remains unclear yet how the funds will be channelled.

“There are no further details on this plan yet, but we have seen some capital injection into some struggling shipyards owned by the government,” Eddy noted.