Indonesian President Joko Widodo has signed the government regulations to attract more investment in several sectors by providing tax incentives - Photo by President Office

JAKARTA (TheInsiderStories) – Indonesian President Joko Widodo has signed the government regulations to attract more investment in several sectors by providing tax incentives. The rule shall come into force on June, 26.

The regulation Number 45 Year 2019 to change regulation Number 94 of 2010 concerning on the calculation of taxable income and repayment of income tax. As regulate in Article 29A, the taxpayers which invest in the labor-intensive industries can be provided with income tax facilities in the form of net income reduction of 60 percent of the total investment.

Its form is tangible fixed assets including land used for main business for a certain period of time. Furthermore, the regulation also regulates taxpayers who develop human resources will be given a reduction in gross income of a maximum of 200 percent from the total costs incurred to work practice, apprenticeship, or learning activities.

According to this regulation, the taxpayers who carry out certain research and development in Indonesia can be given a reduction in gross income of a most of 30 percent of the total costs incurred in a certain period.

“This activity is to produce inventions, innovations, mastery of new technologies to increase the competitiveness of national industries,” as Article 29C paragraph two explained.

Since early of this year, Indonesian government continues to push tax incentives to attract capital inflows come to the country. For an example, the government plans to provide tax incentives for foreign companies that make profits in Indonesia to reinvest their profits in the archipelago.

The government also asses the possibility to scraps corporate income tax to be equal with other countries. Its expected the adjustments will become an incentive for businesses to produce export-based products.

According to Finance Minister Sri Mulyani Indrawati, there must be a clear design of the tax incentives so that incoming capital flows can have a positive impact on the economy. According to her, the provision of tax incentives is crucial for an investment in the developing countries like Indonesia.

For this reason, she noted that the capital inflows must be utilized so not run away from Indonesia like hot money in the capital market. On a separate occasion, Economist Chatib Basri reminded the government to deepen financial markets so that the bond and capital markets did not depend on external financing.

Currently external financing from foreign capital is vulnerable to leaving Indonesia, especially if the Federal Reserves normalizes monetary policy by raising its benchmark rate.

Financial market deepening can be done by providing incentives or rules for State-owned Enterprises, Pension Funds, insurance, Hajj and retail funds to place investments in government bond instruments.

In addition, Indonesia could also implement a “reverse Tobin Tax” which provides tax incentives if investors make long-term profit to re-invest. He added, the government also must create new financial market instruments, so that investors have the option to place their portfolio in the country.

Currently, the government continues to provide other tax incentives, such as tax holidays and tax allowances to support the business players in Indonesia. The country now focus to boost export and investment to maintained the east of doing business ranking and to drive the economic growth.

Written by Willy Matrona, Email: theinsiderstories@gmail.com