The government is slated to implement a new set of tax allowances on May 6 as part of its efforts to attract more investment, which will help boost the economy’s growth.
A number of ministries and state institutions are in the process of completing their own technical regulations as follow-ups to the recently issued tax policy, according to Coordinating Economic Minister Sofyan Djalil.
“We have conducted a coordination meeting for final review, which was fine in general, so we are ready to implement the policy on May 6. Regulations at the Finance Ministry and Investment Coordinating Board [BKPM] have been issued, while the Industry Ministry is awaiting a final signing,” Sofyan said on Thursday.
Government Regulation (PP) No. 18/2015, signed by President Joko “Jokowi” Widodo early in April,stipulates that any firms that have made significantly valuable investments and intend to export their manufacturing output, have hired a high number of workers, or have used a large amount of local content are eligible to obtain the tax incentives.
The changes in the tax allowance provision are set to help the government meet its target of generating direct investments totaling Rp 3.5 quadrillion (US$270.19 billion) by 2019, more than double the figure recorded from 2009 to 2014.
For this year, it expects to draw in Rp 519.5 trillion in investment, up 14 percent from last year.
Between January and March this year, Indonesia saw a 22.8 percent increase to Rp 82.1 trillion worth of foreign investment compared to the same period last year, while domestic investment had also increased by 14 percent to Rp 42.5 trillion, according to BKPM data.
Sofyan said that a considerable number of companies had been proposed for the new tax allowances. Existing companies that had been given previous tax allowances would be able to propose themselves for the new ones if eligible, Sofyan added.
According to Sofyan, a small number were approved last year due to stricter requirements.
“Some companies on the list last year probably postponed their proposals as they knew we were revising the policy. I’m sure we will see a significant number of new applications as soon as the policy is implemented as we’re offering more flexibility,” Sofyan said.
Finance Ministry center for state revenue policy director Astera Primanto Bhakti said the government offered more flexibility as the new policy “sees the magnitude of an investment and opens itself to the diverse characteristics of various industries”.
The new rule expands the provision of the tax allowances from 129 business sectors to 143. The new sectors include the shipbuilding and maritime industries, mineral processing and tourism.
Indonesian Institute of Sciences (LIPI) economist Latif Adam said previously that a flexible set of fiscal incentives would be more beneficial to the government as well as investors, who were often reluctant to apply for prior facilities that had long-term and rigid requirements.
“For example, the previous government’s plan to offer a 30-year tax holiday is difficult for us to review because it will contradict the initial negotiations. The most reasonable incentive is the exemption of import duties for raw materials, because we can evaluate this facility every year,” Latif told The Jakarta Post.