Former Trade Minister Criticises Singapore Over Forest and Land Fires: Littering and Defecating in Indonesia

Former Indonesian Minister for Trade Muhammad Lutfi believes that Indonesia is merely being used as a dumping ground by Singapore, following the neighbouring country’s protests over smoke from forest and land fires (karhutla).

Lutfi made these remarks in response to the Singaporean Government’s move to send warning letters to seven companies in Indonesia suspected of being responsible for the forest and land fires.

In a post on his personal Instagram account @m.lutfi on Tuesday (20 October), Lutfi exposed the business practices of companies operating in the palm oil sector in Indonesia, yet hiding behind the Singaporean flag.

He accused palm oil tycoons of borrowing trillions of rupiah from domestic banks to build massive plantations in Indonesia, given that banks in Singapore were reluctant to take on the risk of such loans.

However, once the plantations are operational and generating profits, Lutfi claims that these companies instead set up holding companies in Singapore, list them on the Singapore stock exchange, and pay significantly lower taxes in that country.

“They set up holding companies under the Singaporean flag and then pay minimal tax through that structure,” said Lutfi.

According to him, the multiplied profits from this practice are then invested in family offices in Singapore, which have a minimum asset requirement of 20 million dollars.

“It’s like having a home, eating and drinking in Singapore, but disposing of rubbish and sewage in Indonesia,” said Lutfi.

He also highlighted this practice as ‘transfer pricing’ – a scheme involving the sale of raw materials from Indonesia to their trading companies in Singapore to shift profits and minimise income tax in Indonesia.

“The raw materials are first sold from Indonesia to their trading companies in Singapore so that the profit is shifted overseas; it is designed to be tax-efficient, paying as little income tax as possible in Indonesia, whilst parking their wealth in Singapore,” said Lutfi.

As a result of this scheme, Lutfi said, the tycoons’ family offices are growing ever larger and the management fees flow into the Singaporean government’s coffers.

“Indonesia is left with the smoke, environmental damage and a tarnished reputation, whilst Singapore pockets the profits,” said Lutfi.

Lutfi also highlighted Singapore’s economic model, which lacks extensive land and a large domestic market.

Consequently, Singapore is said to attract investors with low tax rates of around 5–15 per cent to establish their headquarters there, whilst their factories and plantations are located in neighbouring countries where labour and land costs are cheaper.

Lutfi also urged Singapore not merely to reprimand these seven companies, but to take firm action by conducting direct raids on their headquarters under Singaporean law.

Last Friday (16 October), Singapore announced it would issue warnings to seven companies in Indonesia which it had identified as bearing the greatest responsibility for the recent forest and land fires.

It alleges that these fires have caused toxic smoke to spread throughout South-East Asia. According to AFP, the companies include Bumi Andalas Permai, Bumi Mekar Hijau and SBA Wood Industries. Most of them are timber suppliers to the pulp and timber industries in Sumatra.

Furthermore, Singapore has threatened to take legal action against the companies responsible for the fires.

“Our investigations so far indicate that some of the haze experienced in Singapore originated from fires on land owned by seven companies in Indonesia,” said Singapore’s Minister for Sustainability and the Environment, Grace Fu.