Jakarta – Mochamad Tjiptardjo, general director of taxation, said on Tuesday that the Finance Ministry was preparing to offer investment incentives in the form of a tax holiday.

"The [ministry] has formed a team that is currently working on the tax holiday incentive," he said after a gathering at the ministry in Jakarta. "If possible, it can be given on Jan. 1 [next year]."

The tax chief said the ministry would announce the schedule for the tax holiday after a review.

Finance Minister Agus Martowardojo said in June that the ministry was considering granting a tax holiday. He said lost revenue from the scheme would be offset by increased investment, if the tax holiday was implemented correctly.

Indonesia had granted tax breaks in previous years. In 1967, the state suspended tax on foreign direct investment, but the plan met with limited success and was dropped in 1984.

Later, requests from the private sector to include a tax holiday in the 2009 law fell short.

Ministers believe the policy may have a better outcome in a more stable economic climate.

Officials who support the tax break proposal are seeking to revise the tax code, which holds that any activity generating revenue is subject to tax.

Tjiptardjo said tax holidays are not included in taxation laws, but are instead regulated by the Investment Law. He said both laws should be "harmonized."

The tax chief said other tax facilities are in place. "Other subjects like tax rate depreciation, accelerated restitution and tariff derivation are already available."

He said potential revenue losses from foreign entities are insignificant since these companies are not subject to property tax. "Of course, there is a potential lost if they are freed. But according to the law, they are not tax subjects," he said.

Tax holidays exempt companies from paying taxes during a certain period. (Antara, JG)