The government plans to scrap a 10 percent value added tax (VAT) currently imposed on foreign liners serving shipments to and from Indonesia as part of efforts to reduce the high-cost of doing business in the country, according to a minister.

The plan comes following an earlier decision to lower freight handling fees at ship ports.

"The finance, trade and transportation ministries have agreed to scrap the 10 percent value added tax (VAT) currently charged on all export and import shipping services by foreign liners," Minister of Transportation Hatta Radjasa told reporters after a meeting on Monday with Coordinating Minister for the Economy Boediono and Minister of Trade Mari E. Pangestu. "We are currently revising it, and will soon announce its implementation."

Hatta explained that the decision was taken as a reciprocal measure in line with global trade practices, as no other country in the world imposed such shipment duties. Shipping associations have long complained about the duties as well, arguing that it only burdened overseas shipments with unnecessary costs.

The decision was also expected to support the government's earlier efforts in reducing high-cost economy components in the transportation sector, by lowering last year the terminal handling charge (THC) for 20-foot containers at all domestic ports from US$150 to $95, in comparison with other ports in the region.

On the implementation of the new THC itself, Hatta said that it was currently going well, with all major line operators now abiding by the new fee. There had previously been a reluctance to implement the new THC rates from several port operators, particularly those with foreign shareholders, who argued that it would cut into their profit margins.

"The government is even considering lowering the THC again if possible," Hatta said, adding that the government will also continuously improve the management at all domestic ports, focusing on eliminating illegal fees.

Meanwhile, on the development of the local shipping industry due to the "maritime cabotage policy", Hatta explained that last year saw a 10.7 percent increase in Indonesian vessels used for domestic cargo delivery, to 6,689 vessels from 6,041 previously.

With this, local liners now have a 55.47 percent share of last year's 206.33-million-ton domestic shipping market. Foreign liners, however, still dominate the 492.97-million-ton overseas shipping market with 94.95 percent of the market.

"This is nevertheless an encouraging development for the local shipping industry, and in line with our road map to empower local vessels for domestic shipments," Hatta said.

"We expect that by 2009 all shipments of the 13 essential commodities -- from the present six commodities -- will be served by local vessels, although shipments of coal, oil and gas may still be excluded from the policy as the government will honor any existing long-term shipping contracts."

Under the "maritime cabotage policy", the government has since last year obliged all domestic shipments of rice, sugar, crude palm oil, wood, fertilizer, cement and general cargo to use local liners. By 2007, agricultural produce such as vegetables and fruit must also be shipped using Indonesian vessels, with corn, soybeans, coal, oil and gas following by 2009.