As the government prepares its fifth economy policy package, the Investment Coordinating Board (BKPM) has proposed an easing of the existing tax allowance regulation. Currently, according to Government Regulation (PP) No.18/2015, tax allowances are only given to labor-intensive industry operators outside of Java.
BKPM chief Franky Sibarani said the board would submit a revised draft of the proposal later this year, recommending that prospective investors planning to develop labor-intensive industries in Java also be eligible for tax allowances.
"We will soon be discussing our proposal with the Finance Ministry. It is highlighted in our proposal that we should eliminate the prioritization of non-Java areas in the granting of tax allowances, because most labor-intensive investment projects are located in Java," said Franky in Jakarta on Thursday.
The change, Franky continued, was necessary for improving labor-intensive industries. Throughout the first nine months of 2015, investment in Indonesia's labor-intensive sector experienced a 11.74 percent growth decline.
The BKPM’s deputy director for investment monitoring and implementation, AzharLubis, acknowledged that a tax-holiday relaxation could also increase labor absorption, despite the value of investment in the labor-intensive industry being relatively small compared to other investment sectors.
Based on BKPM data, the amount of labor absorbed in the first nine month of 2015 was 1,059,734 people, a 10.4 percent increase year-on-year (yoy).
PP No. 18/2015 on income tax facilities for investment in certain fields and regions stipulates that investors can get a 30 percent income-tax (PPh) deduction off the total investment for 6 years, or a 5 percent deduction for a year.
Besides relaxing tax allowances, the BKPM has also recommended simplifying investment procedures, such as trimming licensing requirements in the industrial bonded zone, facilitating investment in construction and finalizing construction investment permits