Next week, Indonesia’s Investment Coordinating Board (BKPM) plans to launch an upgraded version of its Online Single Submission (OSS) system. The OSS system is a web-based business licensing system that aims at cutting the red tape that is involved when investors try to obtain business permits in Indonesia. Massive red tape is considered to be one of the major obstacles in Indonesia’s investment climate.
The OSS system was launched in July 2018. Initially, it was run by the Coordinating Ministry of Economic Affairs because BKPM (the non-ministerial government agency that is in charge of implementing policies and service coordination for direct investment) was not ready to handle the new online system. However, on 2 January 2019 BKPM finally took over the OSS system’s operation.
The new OSS system did not come without flaws. Possibly because the system was rushed into existence, there emerged various bugs and other problems, including outdated software, weak cooperation between the central and regional governments (some local governments simply refuse to adopt the system), the inability of the system to accommodate investors who are eligible for tax holidays, and more.
Although it has not been explained yet what the upgrades are that have been done to the OSS system, BKPM Chairman Thomas Lembong said synchronization and coordination between the various government ministries and institutions – both at the central and regional level – have been improved.
The OSS system was designed with the aim to attract more investment into Indonesia. In 2018 total direct investment realization reached IDR 721.3 trillion, up 4.1 percent from investment realization one year earlier (but missing the government’s investment target of IDR 765 trillion). Domestic direct investment did great, rising 25.3 percent (y/y) to IDR 328.6 trillion last year. However, foreign direct investment (FDI) fell 8.8 percent (y/y) to IDR 392.7 trillion. Most likely foreign investors prefer to wait and see ahead of the legislative and presidential elections that are scheduled for Wednesday 17 April 2019. But also the high degree of persistent global uncertainties may reduce investors’ appetite.
At BKPM’s annual national coordination meeting, which is scheduled for the second week of March 2019, all 560 central and regional BKPM branches will meet. At this occasion, the upgraded OSS system will be launched. This event will also be joined by Indonesian President Joko Widodo.
OSS System | Overview
Government Regulation 24/2018 entered into force on 21 June 2018 and established the integrated online single submission system (OSS) which constitutes a significant overhaul of Indonesia’s business licensing regime. The system aims to enable businesses to obtain all necessary central and local government business and operating licences online using the OSS portal.
The OSS system is designed to be used by all types of private-sector business organisation – from limited liability companies to civil partnerships – across all economic sectors, with the notable exceptions of the financial services, mining and oil and gas sector. Licensing in the financial services industry will continue to be administered by the Financial Services Authority, while licensing in the mining and oil and gas sectors will remain the responsibility of the relevant ministries and, to some extent, the Indonesian Investment Coordinating Board (BKPM).
The benefits of Government Regulation 24/2018 are not confined to the establishment of an integrated online licensing system. The schedule to the regulation sets out comprehensive lists of the licences and technical recommendations required to carry out business in all major economic sectors (excluding the above exceptions). This inventory of licences and recommendations will make it much easier to identify which documents must be obtained from the government in order to carry out business.
Further, the schedule significantly streamlines the number of licences and technical recommendations required in many sectors. Overall, Government Regulation 24/2018 for the online single submission system appears to be a reasonably comprehensive, well-thought-out instrument that should help to further improve Indonesia’s ranking in the World Bank’s Ease of Doing Business Index, where Indonesia’s position has improved dramatically from 129th in 2011 to 72nd in 2018.
The regulation provides both incentives and penalties for ministries and government agencies in order to encourage them to properly operate the online single submission system. The incentives include the prospect of budget increases, while the penalties include the possibility of budget cuts.
Further, ministries and government agencies must draw up business licensing standards encompassing the norms, criteria and procedures for issuing licences. This should make things more predictable for businesses, provided that these standards are made public.
The regulation also provides a mechanism for accommodating public complaints regarding such issues as an abuse of power and establishes administrative penalties for provincial governors and local government chief executives and officials who fail to implement the system as required. Should there be prima facie evidence of criminality, the regulation envisages that this should be forwarded to the police or prosecution service for follow-up action. However, no penalties are provided for ministers who fail to properly implement the system.
Although the above changes have been welcomed, the OSS system remains a work in progress, with various bugs, glitches and difficulties emerging as it is rolled out. However, this is to be expected given the sheer number of economic sectors, ministries, central and local government organisations and sectoral regulations involved.
The online single submission system (OSS) is presently administered by the coordinating minister for the economy on an interim basis. However, a press release posted on the BKPM website on 19 July 2018 states that it will assume full responsibility for the system’s administration in November 2018.