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Indonesia to Harmonizea 82 Laws and Thousands of Decrees

The Indonesian government plans to hand over a revised labor and taxation law bill to the parliament by early-January 2020 - Photo by TheInsiderStories.

JAKARTA (TheInsiderStories) – The Indonesian government plans to hand over a revised labor and taxation law bill to the parliament by early-January 2020 as it seeks to boost the country’ investment ecosystem and competitiveness, particularly in the face of uncertainty and a slowdown in the global economy.

After coordinating meeting at his office, coordinating minister for economic affairs, Airlangga Hartarto said on Thursday (12/12) the labor bill substance on Omnibus Law includes 11 clusters such as simplification of licensing, investment requirements, employment, ease, empowerment and protection of medium and small-medium enterprises, business easiness, research support and innovation, government administration, the imposition of sanctions, land procurement, government investment and projects, and economic zones.

“We have discussed the substance of these 11 clusters intensively with 31 related ministries and institutions,” said the senior minister.

Based on the discussion, he went on, so far 82 laws and 1,194 articles have been identified that will be harmonized through the labor omnibus law. He said one law could be included in several clusters, so the number of laws was not the total sum of all clusters.

“That is, if one law is related to three clusters, then it is counted as one law,” he explained.

The bill would try to ease the restrictive rules used under the 2003 Labour Law to recruit or lay off employees, Hartarto said. The existing labor law includes some of the most generous severance pay rules in the world that investors have cited as a hindrance to formally hire staff.

Every year, a significant number of new people join a labor force that currently has around 110 million people, but rules now give “a huge advantage for those who are already employed”, the minister said.

The law would aim to create the “same opportunity” for everyone in the labor market to get a job, while companies would also be incentivized to upgrade labor skills, he said.

Meanwhile, the taxation omnibus law prepared by finance ministry includes six pillars, namely investment funding, territorial systems, individual tax subjects, taxpayer compliance, business climate justice, and facilities.

“We harmonize the two substances of the omnibus law. That’s related to the aspects of taxation and fiscal policy, which concerns the substance in the labor omnibus law is included in the taxation law,” the minister said.

Finance minister Sri Mulyani Indrawati has explained, the new law will regulate income tax, value-added tax, regional tax and regional user fees, and general tax provisions. But, she assured the existing law will still exist.

“Of course there are several articles that get input during the discussion in the cabinet meeting, we will reformulate and we expect to get a presidential letter to be submitted to the parliament in December,” she said after a limited meeting at the Presidential Office in Jakarta days ago.

The minister said the omnibus law will revise the current tax code, income tax law, value-added tax law, and regional tax and retribution law. The new law will cut corporate income tax to 22 percent in 2021 and 2022 from 25 percent today. The tax will be lowered again to 20 percent from 2023 onward.

The minister went on to say that companies that go public for the first time in 2021 and the years after will get a further discount of three percent for five years on their income tax.

“Thus, for those who go public, their income tax will decrease from 22 percent to 19 percent. And those who go public later in 2023, they will go down from 20 percent to 17 percent because it will drop 3 percent below the tariff,” she explained.

Furthermore, corporate or individual shareholders will no longer be required to pay tax on dividends they receive from local companies, Indrawati said. Today, the tax office takes a 10 percent cut for the state on any dividend.

Hartarto is ready to submit a report to the President, including the completion of the academic paper and the omnibus law draft bill, to then be submitted to the parliament.

“Then in parallel with discussions in parliament, we will also begin to prepare derivative regulations,” he said while informing the two laws has included in the House’ legislative program super-priority in 2020.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com