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

JAKARTA (REUTERS) - Indonesia will offer Taiwan's Hon Hai Precision Industry Co a tax package aiming at kickstarting the consumer electronics maker's stalled plan to invest billions of dollars in South-east 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 be finalised, and will fall short of an import tariff waiver that Hon Hai has sought in months of talks with the government.

The wrangling has made Hon Hai, which makes around 60 percent of its revenue assembling iPhones and iPads and in other work for Apple Inc, the latest in a series of global companies to raise alarm over the tax environment in Indonesia.

Economy watchers say the country's tax system has hindered much-needed foreign direct investment.

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

But the government does not intend to remove current import duties of up to 7.5 percent for cell phones and their components, the official said.

Hon Hai, the flagship listed unit of Foxconn Technology Group, was still in talks with the government and declined to provide 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 client base as momentum slows at Apple. It hasn't disclosed the potential investment amount, but Indonesia's trade minister last year suggested a figure of between US$5 billion (S$6.17 billion) and US$10 billion.

Company officials indicated earlier this month that it would be difficult for Hon Hai to expand into Indonesia if it was forced to pay import taxes on all of the electronic components currently unavailable in the Southeast Asian country.

"If we try to make phones here, there are 100 components we will need to pay tax on. How would you be able to make a reasonable, profitable business?" Simon Hsing, a company spokesman, told reporters on the sidelines of an economic summit this month.

Hon Hai has a tentative agreement in place with Indonesia's largest 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 said Erajaya would hold a minority stake in the joint venture.