The government has been roundly criticized for failing to keep its promise to scrap value added tax on primary products, something that would significantly reduce the costs of local industries that use such products as their raw materials.

"The government is too slow in processing the technical proposals for implementation of the promised policy," House of Representatives' trade and industry commission chairman Didik J. Rachbini said after a Thursday meeting with the industry minister and business association representatives.

Didik added that his commission had yet to receive the details of what products would be covered by the proposed VAT exemptions.

Food and Beverage Producers Association chairman Thomas Dharmawan urged speedy introduction of the VAT exemptions in order to help local industry, which had seen costs rocket following last year's double fuel price hikes.

The promise to scrap 10 percent VAT on primary products, mostly agricultural, was included in the government's incentive package issued last October, which was intended to help speed up economic growth and increase the competitiveness of local products on the export market.

It was originally due to be put into effect in January, but the government argued at the time that it needed to consult further with the House of Representatives as the policy would subsequently be incorporated into proposed amendments to the tax legislation .

Manufacturing firms that rely heavily on agricultural products have also been complaining that the imposition of VAT on primary products led to supply shortages for downstream industries as some growers, particularly in the case of coffee and cocoa beans, preferred to export the commodities to avoid paying local VAT.

Industry Minister Fahmi Idris previously acknowledged that government ministries were divided over the promised VAT exemptions.

For example, the Agriculture Ministry wanted to see exports being maximized in order to improve the prices paid to farmers.

Meanwhile, the Finance Ministry's Directorate General of Tax argued that the scrapping of VAT on primary products would mean the loss of up to Rp 4 trillion in government revenues.

VAT on primary products has introduced in 1995 and the local food processing industry has been complaining bitterly ever since, arguing that the tax made no sense as the products had not undergone any form of processing that gave rise to added value.

Cocoa Producers Association operations director Peter Andow explained that currently only half of the country's cocoa processors were still operating due to a shortage of cocoa beans.

Ironically, Indonesia is one of the world's largest cocoa bean producers.

The coffee processing industry has also complained that coffee bean producers only sell 5 percent of their total production to the downstream processing industry, leaving most processors that use coffee beans short of supplies.

Lawmaker Didik Rachbini said that the government needed to speed up the submission of a detailed request for the scrapping of VAT on such products in order to avoid further damage to the food processing industry.

"If the concept and the details are clear, the House will certainly give its approval," he said.

Lawmakers plan to hold a meeting to discuss the matter with representatives of the Indonesian Chamber of Commerce and Industry, the Industry Ministry and the tax directorate general next week.