The government has gone all out in luring investment to Indonesia as part of its efforts to revive the country’s manufacturing sector and improve its export performance to spur economic activity amid looming external risks.
When he addressed his supporters in Sentul, West Java, in July, President Joko “Jokowi” Widodo emphasized that attracting investment would be one of his priorities in his second term.
“No one should be allergic to investment. This is how we create as many jobs as possible. Therefore, anything that obstructs investment must be trimmed, such as slow or complicated permit processes, especially illegal levies,” said Jokowi.
Investment, which accounts for more than a third of Indonesia’s GDP, has steadily declined since last year’s third quarter. Year-on-year (yoy) investment growth stood at 4.21 percent in the third quarter of this year, significantly lower than the annual growth rate of 6.96 percent booked in the third quarter of 2018, Statistics Indonesia (BPS) data show.
Indonesia’s economy expanded by 5.02 percent yoy in the third quarter of this year, with household spending and net exports — thanks to imports falling more steeply than exports — buoying overall GDP growth.
After his inauguration on Oct. 20, Jokowi laid out the groundwork of several policies aimed at opening up the country to more foreign investment.
The government is currently drafting at least two omnibus laws that have become priority bills in the House of Representative’s National Legislation Program (Prolegnas), one on job creation and the other on taxation.
The omnibus law on job creation, the draft of which is set to be submitted to the House in January, will amend 1,194 articles of 82 laws deemed to be deterring investment. The bill will touch on 11 clusters of issues, including licensing procedures, land procurement and labor regulations.
The omnibus bill on taxation, meanwhile, will effectively lower the country’s corporate income tax to make it more competitive, among other measures.
The corporate income tax rate, currently set at 25 percent, will be reduced to 22 percent in 2021 and to 20 percent by 2022. An additional 3 percent reduction will be given to companies that go public.
The omnibus law on taxation will also revise tax penalties, eliminate dividend tax and streamline tax collection by regional administrations.
Jokowi also streamlined decision-making in his Indonesia Onward Cabinet, granting coordinating ministers veto power to shoot down policies made by ministers deemed contradicting the government’s overarching goal of luring investment.
At the same time, the President has granted the Investment Coordinating Board (BKPM) the authority over business licensing to improve the ease of doing business.