Indonesia to offer Hon Hai tax package, import tariff concerns remain

Reuters

By Yayat Supriatna and Randy Fabi

JAKARTA, Oct 29 (Reuters) - Indonesia will offer Taiwan'sHon Hai Precision Industry Co a tax package aiming atkickstarting the consumer electronics maker's stalled plan toinvest billions of dollars in Southeast Asia's largest economy,a government official said.

Budi Darmadi, a director general at the industry ministry,told Reuters in an interview the incentives have yet to befinalised, and will fall short of an import tariff waiver thatHon Hai has sought in months of talks with the government.

The wrangling has made Hon Hai, which makes around 60percent of its revenue assembling iPhones and iPads and in otherwork for Apple Inc, the latest in a series of globalcompanies to raise alarm over the tax environment in Indonesia.Economy watchers say the country's tax system has hinderedmuch-needed foreign direct investment.

"For sure the Indonesian government will provide incentivesfor investment for certain amounts and in certain fields,according to Indonesian government regulations," Darmadi said inthe interview on Friday.

But the government does not intend to remove current importduties of up to 7.5 percent for cell phones and theircomponents, the official said.

Hon Hai, the flagship listed unit of Foxconn TechnologyGroup, was still in talks with the government and declined toprovide further comment, a company spokesman said on Monday.

As the world's largest contract electronics manufacturer,Hon Hai has been trying to diversify its business and clientbase as momentum slows at Apple. It hasn't disclosed thepotential investment amount, but Indonesia's trade minister lastyear suggested a figure of between $5 billion and $10 billion.

Company officials indicated earlier this month that it wouldbe difficult for Hon Hai to expand into Indonesia if it wasforced to pay import taxes on all of the electronic componentscurrently unavailable in the Southeast Asian country.

"If we try to make phones here, there are 100 components wewill need to pay tax on. How would you be able to make areasonable, profitable business?" Simon Hsing, a companyspokesman, told reporters on the sidelines of an economic summitthis month.

Hon Hai has a tentative agreement in place with Indonesia'slargest mobile phone distributor, PT Erajaya Swasembada, to build a manufacturing plant to assemble handsets,Erajaya's CEO Budiarto Halim told Reuters earlier this month.

He declined to provide specifics of the deal, but saidErajaya would hold a minority stake in the joint venture.

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