Indonesia’s president Joko Widodo has ordered his cabinet to increase efforts to cut regulations that hurt foreign direct investment, aiming to shield South-east Asia’s largest economy from a global economic slowdown.
The country plans to cut tax on corporates and scrap a levy on dividend to make Southeast Asia’s largest economy more attractive to foreign companies.
Indonesia must anticipate a global slowdown and “a growing possibility of global recession” amid the US-China trade war, the president said.
“I ask all economic related ministries to make an inventory of regulations that hinder or slow investment and let’s meet in a week to talk about how to streamline them,” he told a meeting with some ministers in his cabinet.
Within the new Indonesian tax cuts plan the corporate tax will be gradually lowered to 20% starting 2021 from 25% now and companies listing their shares may be subjected to a lower rate of 17% for a period of five years, finance minister Sri Mulyani Indrawati told reporters after a cabinet meeting in Jakarta on Tuesday. The government will overhaul laws related to value-added tax, income tax and general taxation, she added.
The president said a World Bank report presented to his administration showed that out of 33 companies which relocated out of China amid the trade war, 23 had chosen Vietnam and the others had picked Malaysia, Thailand and Cambodia.
“Nobody came to Indonesia. Underline this. We have a problem,” he said, describing further that it takes 2 months to process a new investment in Vietnam, as opposed to years in Indonesia.
The tax on dividend earned by local and foreign investors will be eliminated if it’s reinvested, Indrawati said. The revised regulations will also cover tax breaks extended to various sectors, she said, adding that individuals — foreign or domestic — will be required to pay taxes only if their stay exceeded 183 days.
The government will also slash the penalty on taxpayers who correct their returns after filing and owe money to the exchequer.
Widodo, who won an election in April for a second term, has promised more investment opportunities to create jobs and growth, but has also repeatedly expressed frustration at the country’s red tape.