Government to Create New Fiscal Incentives to Attract Investors

Photo Credit : Industry Ministry

JAKARTA (TheInsiderStories) — The Indonesian government is considering ways to offer novel fiscal incentives to investors, as those provided earlier appear to have failed to attract much interest on the part of investors and other business players, either for investing or expanding an existing business.

Finance Minister Sri Mulyani Indrawati revealed that not even one company applied for tax allowances or tax holiday facilities in 2017. This has impelled the government to examine the current needs of industries and investors.

She added that in other countries, such as the US, government proffers various facilities which were deliberately created to provide breathing space for businesses. Therefore, the Indonesian government will seek input from various business sectors on the obstacles that they are encountering, related to fiscal issues.

“As for the existing fiscal incentives such as tax holiday and allowance, we will see why the demand is limited, and whether the allowance form can be changed in order to attract more investors. The new incentives can be done through PP or PMK (Government Regulation or Ministerial Decree),” she said.

Sri Mulyani said that while a tax holiday and tax allowance incentives were introduced ten years ago they are perhaps relevant no longer. Both incentives were issued based on recommendations of the Investment Coordinating Board (BKPM) and the Industry Ministry.

Mulyani called on related institutions in the Ministry – the Fiscal Policy Agency and the Directorate-General of Taxation and Customs and Excise office – to carry out an evaluation of current and potential fiscal incentives. The evaluation could also involve several other ministries: the Trade Ministry, the Agriculture Ministry, the Energy and Mineral Resources Ministry and the Maritime Affairs and Fisheries Ministry – to find out why current fiscal incentives are not attractive.

From the business side, qualifying for and receiving fiscal incentives is complicated and time-consuming, because of the assessment. The Indonesian Chamber of Commerce and Industry (Kadin) Deputy Chairman for Trade, Benny Soetrisno, said such a complicated process may have caused investors to refrain from investing their money in this country.

“Foreign investors are informed that if they invest outside Java, they will get a tax holiday, but in reality, they only get a tax allowance,” he explained.

Benny said that in other countries the process of obtaining these incentives is easier. “There is one tough competitor, Vietnam, which offers investors more certainty and a streamlined investment process,” said Benny.

The Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo said it is important to evaluate these fiscal incentive policies. The Finance Ministry may require deleting some sectors and adding others that may need to be allotted incentives, because it is necessary to examine the right target, to be effective and to create a multiplier effect.

Moreover, he said, it is true that tax allowances and tax holidays require quite complicated efforts. Therefore, the government needs to expedite these intelligently.

According to him, from this evaluation, the government needs to focus on labor-intensive industries, namely, the textile sector and agribusiness. Other than that, the tax exemption for certain goods also needs to be reviewed.

In addition, it is not only written policy that needs to be evaluated, but also an unwritten policy that often becomes a disincentive for business.

“Last, what is needed by business actors is not additional incentives, but to avoid disincentives, namely, impediments in licensing, ease of exporting and importing, logistics, infrastructure, and others,” he said.

Late last week, the Industry Ministry Airlangga Hartarto said that President Joko Widodo has asked the Coordinating Ministry for the Economy to evaluate the tax allowance policy given to the industrial sector.

Evaluation is needed given that neighboring countries have provided more attractive investment incentives. Thailand, as a case in point, has provided tax allowance of up to 300 per cent for investment in research and development and up to 200 per cent for investment in human resources. Indonesia, he said, can learn from the Thailand case.

Written by Staff Writer, edited by Elisa Valenta, email: