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.
“At the end we expect the incoming capital flows are good in the form of foreign direct investment not destructive the economy,” she said on Tuesday (01/08) at one event in Jakarta.
According to her, the provision of tax incentives is crucial for an investment in the developing countries like Indonesia. For this reason, Indrawati stated 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.