2018 Industry Outlook: Tax Incentives and Revolution to Achieve Industrial Growth

Industry Outlook Seminar (Image : Industry Ministry)

JAKARTA (TheInsiderStories) – The Ministry of Industry plans to provide manufacturers — principal contributors to the national gross domestic product (GDP) — with three tax incentives to try to jump-start the Indonesian economy, which has suffered from slow growth in recent years.

The government expects all sectors excluding the oil & gas industry to grow by 5.67 percent in 2018, driven by agroindustry, metals, machinery, transportation, electronics, chemicals and textiles.

It plans to offer a 200-percent tax allowance to manufacturers who invest in vocational programs to upgrade training and skills for their workers.

“This scheme has been successfully implemented in Thailand,” said Minister of Industry Airlangga Hartarto at the Industrial Outlook 2018 seminar, on Monday (11/12).

The second incentive is for those who invest in innovative products, for which the government will offer 300 per cent in tax incentives from the value of the investment, Airlangga explained.

The third is incentives for labor-intensive industries that focus on exports, for which the incentive would depend on the number of workers employed in the industry, the Minister said.

Industrial Revolution 4.0 

Indonesia has been showing tremendous growth in the past 15 years. Indonesia’s Gross Domestic Product (GDP) jumped significantly from US$165 billion in 2000 to US$ 861 billion in 2015, surpassing Saudi Arabia, Thailand, and Argentina.

The next 15 years will be a golden period for Indonesia, with its society benefiting from a demographic bonus. A factor that needs to be concerned is whether Indonesia might be falling behind global peers such as Singapore, Japan, Malaysia, Thailand and China in technology investment, according to AT Kearney, a business consultant.

By acknowledging the issue, the government admitted major changes are needed in the national manufacturing sector to embrace the ‘Fourth Industrial Revolution’ or ‘Industry 4.0’, especially regarding innovation and a system of sustainable production.

“When a country enters Industry 4.0, thorough and sustainable industrial growth will occur. Therefore, we have prepared four strategic steps for Indonesia to implement Industry 4.0,” said Hartarto.

The first step is to encourage the workforce in Indonesia to upgrade their skills and keep updating their knowledge of information technology and its application to production lines.

“One way to do that is by linking and matching the curriculum of vocational schools with the needs of industry,” he said. The program to prepare ready-to-use workers for the industry has set a target of one million skilled laborers by 2019.

The second step, Hartarto said, is to exploit digital technology to boost productivity and competitiveness, especially in small and medium scale industries (SMIs), so as to penetrate export markets through the ‘SMIs e-smart’ program.

The third step: the national industry has to use digital technology such as Big Data, Autonomous Robots, Cybersecurity, Cloud, and Augmented Reality. ‘The Industry 4.0 System will provide benefits for industry, such as raising efficiency and reducing costs by about 12-15 percent,’ he said.

According to him, a number of national industrial sectors have already entered the era of Industry 4.0, including food and beverages, cement, petrochemicals, and automotive.

‘The automotive industry, for example, already employs robotic systems and the internet of things in their production infrastructure,’ he said.

Meantime, the fourth step is innovation through startup development, by facilitating business incubation sites. This effort has been achieved by the Ministry of Industry by creating technology-based entrepreneurs through several technoparks built in regions around Indonesia, such as in Bandung (Bandung Techno Park), Denpasar (TohpaTI Center), Semarang (Incubator Business Center Semarang), Makassar (Makassar Techno Park – Home Software Indonesia, and Batam (Mobile Design Center).

“The innovation development centers will be integrated with the Apple Innovation Center. Thus, from all these ecosystems, we want to locate a strategic policy to spur growth and competitiveness of the national industry, including preparing incentives,” he said.

Regarding competition among ASEAN countries, he said that each country has a comparative and competitive advantage. ‘Specialization is the key,’ he added.

Written by Elisa Valenta, elisa.valenta@theinsiderstories.com