Suspicious Exports

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  • TEMPO.CO, Jakarta - THE wood pulp exported by Toba Pulp Lestari has long come under suspicion. The type of pulp sent overseas is believed to be different from that recorded on the documentation. The government needs to look into the possibility that the company has committed fraud in order to reduce the amount of tax it pays.

    Law enforcement is important in order to deter crooked companies and to increase state revenues. This is especially true because tax revenues last year were at their lowest for five years. Last year, the tax shortfall was Rp245.5 trillion, far higher than the government projection of Rp140 trillion. Stiff punishments for those who evade taxes will persuade other companies to pay what they owe.

    From 2007 to 2016, Toba Pulp Lestari is alleged to have claimed that it was exporting bleached hardwood kraft pulp (BHKP), which is generally used as the raw material for paper. However, when the wood pulp was sold on the global market, the overseas purchaser stated that it was of the dissolving wood (DW) type. This type of wood pulp is often used to make textiles and is more expensive. For comparison, if BHKP pulp costs US$1 per kilogram, DW pulp costs US$1.50 per kilogram.

    It is this difference in price that led to allegations that Toba Pulp Lestari had manipulated the documents in order to decrease the value of its exports. If this really happened, it is clearly a breach of the Customs Law. Naturally, the motive was to reduce tax payments. These allegations were strengthened by indications that DP Macao, the purchaser of Toba Pulp Lestari’s products, which then sold them on the international market, is also affiliated with tycoon Sukanto Tanoto, also the owner of Asian Agri – a company that was once fined Rp2.5 trillion for tax evasion.

    At first glance, this practice resembles transfer pricing, in which a company sells its products at a low price to an affiliated company overseas in order to avoid paying taxes at home. But in transfer pricing, the same product is transacted. In the case of Toba Pulp Lestari, the product is clearly different. The company is alleged to have intentionally used the HS code – an international harmonized system for classifying trade products – BHKP instead of DW. In other words, Toba Pulp Lestari recorded the wrong product.

    The government should reexamine the tax amnesty data and investigate whether Toba Pulp Lestari declared this practice. The Tax Amnesty Law forgives criminal acts that took place before 2016 as long as the person or company concerned admits their wrongdoing and pays up. If it turns out that it had not done this, Toba Pulp Lestari could then made to pay its tax deficits plus an administrative fine of 200 percent of the unpaid tax for declaring misleading information.

    The finance ministry must have the courage to investigate these allegations of breaches. A resolute stance towards companies that try to avoid paying tax is necessary in order to maintain state revenues. The government also needs to tighten up the oversight of all types of exports. It is not impossible that similar practices have taken place at companies in other sectors that sell their products overseas.

    Read the Complete Story in this Week's Edition of Tempo English Magazine