JAKARTA (TheInsiderStories) – The government of President Joko Widodo will revise certain rules relating to fiscal incentives in order to encourage investors to come to Indonesia. At a closed meeting at the Presidential Palace (Feb. 20), he stated that Indonesia must provide more investment incentives for investors to allow us to compete with other countries.
‘When we went to India, Pakistan, Bangladesh, to Sri Lanka I saw that they were implementing the same steps. Very progressive, very attractive, especially in promoting the ease of investing in their country,’ he said at the opening remarks.
To that end, he requested Coordinating Minister for Economic Affairs (CMEA) Darmin Nasution, Finance Minister Sri Mulyani Indrawati and other ministries to conduct an evaluation of existing incentive rules. He asked the ministers to evaluate how incentives can be given and might be offered to investors, both domestically and abroad.
‘For example, associated with the provision of tax holidays, a tax heaven is more attractive for investment, according to reports that I have received. In fact, incentive schemes for tax holidays and tax allowances already exist in Indonesia – but their rate of utilization is still very low; therefore, these need to be evaluated,’ he said.
Widodo said that CMEA has reported a Submission Single program is ready to be implemented in March, with changes coupled with regulatory cuts by several ministries; this could encourage more investment to come into Indonesia.
In a press statement issued after the limited meeting, Sri Mulyani outlined four fiscal incentives that will be evaluated, namely, tax allowances, tax holidays, fiscal incentives for venture capital and a reduction in income tax (VAT) for research and development, as well as company-sponsored vocational training.
Revisions related tax to allowances: the President asked for the number of industry groups covered to be expanded from a current 145 lines of business, as set out in Ministerial Decree No. 89 / PMK.010 / 2015 and No. 9 2016. The President also called for tax allowance processing to be accelerated and performed on the spot.
‘The President asked for expanded and additional amounts for several ministries, particularly the Ministry of Industry, Ministry of Energy and the Ministry of Tourism,’ explained Sri Mulyani.
For a tax holiday, she said, the President asked for a postponement of tax payments to be extended from the current 5-15 years to match the scheme in force in neighboring countries. The President also called for a minimum investment for the vocational training sector, less than that already committed: Rp1 trillion (US$74.07 billion) and Rp500 billion for information technology companies.
Furthermore, as an incentive for venture capital firms that fund startup companies, they should not be burdened with income tax. Those qualifying for incentives are venture firms registered with the Financial Services Authority as a national company, like PT Perusahaan Nasional Madani, which already runs a business but whose shares are not yet listed.
‘We will revise KMK No. 250/1995, which limits capital for Small and Medium Enterprises to 50 billion.’
Furthermore, Sri Mulyani explained how the government will provide an income tax facility for research and development at companies operating in Indonesia. Finally, middle-class enterprise income tax will be lowered from 1 percent to 0.5 percent.
All of the new rules, she stated, would be implemented in the first quarter of 2018 and are being finalized. She was confident that the change of the rules enabled by this incentive would yield the economic growth target of 5.4 percent as stated in the 2018 state budget, through double-digit growth in investment.