Textile Factory - Photo by PT Sri Rejeki Isman

JAKARTA (TheInsiderStories) – Indonesian government is finalizing a regulation on fiscal incentives for new investments below Rp 500 billion (approx. US$35.49 million), which are not covered in the latest tax-holiday scheme.

Under the regulation being prepared, fresh investments worth between Rp100 billion and Rp500 billion will be eligible for a 50 per cent cut in corporation tax for five years  for pioneering industries.

The industries eligible for the incentives will be the same industries stipulated in Finance Ministry Regulation No. 35/2018 on tax holidays, which include pharmaceutical raw materials, petrochemicals and semiconductors, as well as electrical parts and manufacturing.

The latest incentive is among several that the government is preparing to attract more investments to South East Asia’s largest economy.

The government is also expected to finalize new tax allowances and other tax incentives for small and medium enterprises (SMEs).

Finance Minister Sri Mulyani Indrawati said previously that fiscal incentives had an important role in maintaining the country’s economic growth amid external pressures on Indonesia’s economy, which are likely to force Bank Indonesia to increase its benchmark seven-day reverse repo rate during its board of governors meeting on Thursday.

In addition to the mini tax holiday, the Ministry of Finance is also developing incentives for Small and Medium Enterprises by lowering the final Income Tax rate to 0.5 per cent from 1 percent.

“There are many combinations (from fiscal incentives) that can drive Indonesia’s economic potential,” explained Sri Mulyani.

In a bid to attract more investment to support the country’s economic growth, Indonesia recently issued a new regulation granting a 100 percent Corporate Income Tax (CIT) cut to new FDI-backed businesses.

Further, the new regulation grants tax holidays to new investors in any of the 17 pioneer industries including transportation, telecommunications, robotic components, oil and gas refinery, train engines, medical devices, pharmaceutical raw materials, power plant machinery, and processing of metals and agricultural products among others.

Pioneer industries are those that create added value, introduce advanced technology and have strategic value for the national economy. Previously, the provision was available to only eight such industries.

The number of fiscal incentives given this year has not made Sri Mulyani worry about tax revenue. She hopes, the impact of imposition of this fiscal incentive can be useful in the long run.

Until April 2018, the Ministry of Finance has pocketed tax revenue of Rp383,3 trillion ($26.9 billion), where this figure grew 10.89 per cent over the previous year. This figure is also recorded 28.62 per cent of revenue target in this year amounted to Rp1.424 trillion ($102.2 billion).