Indonesian Economic Stimulus Package

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By Adhiningtyas Sahasrakirana Djatmiko and Tanita Dhiyaan Rahmani

Between September 2015 and March 2016, the Indonesian central government released eleven economic stimulus packages, which taken together are known as Jokowi’s Economic Package (Paket Kebijakan Ekonomi Jokowi). Jokowi, of course is Indonesia’s president, Joko Widodo. A twelfth package is expected to be released in April 2016. The packages are designed as a first-aid kit for the Indonesian economy and include amendments to regulations and the revocation of regulations seen as hampering economic growth.

The following is a summary of the packages that have been released as of this article.

a.         First Package

The first installment of the stimulus package, announced on September 9, 2015, contained plans to revoke and/or amend 134 regulations, most notably regulations from the Ministry of Trade (“MOT”). One of those 134 was MOT Regulation No. 27/M-DAG/PER/5/2012 regarding Provisions on Importer Identification Number (Angka Pengenal Importir or “API”) and its amendments, which were revoked and replaced by MOT Regulation No. 70/M-DAG/PER/9/2015 regarding API (“MOT Reg. 70/2015″). MOT Reg. 70/2015 serves to simplify import licensing.

Other examples include (i) MOT Regulation No. 72/M-DAG/PER/9/2015 regarding the Third Amendment of MOT Regulation No. 14/M-DAG/PER/3/2007 regarding the Standardization for Services for Trade and Supervision of the Indonesian National Standard (SNI) for Traded Goods and Services; (ii) MOT Regulation No 73/M-DAG/PER/9/2015 regarding the Obligation for Indonesian-Language Labels on Goods; and (iii) MOT Regulation No. 74/M-DAG/PER/9/2015 regarding the Inter-Island Trade of Refined Sugar.

b.         Second Package

The second package, released on September 29, 2015, was aimed more firmly at easing the investment process in Indonesia. This second package included Investment Coordinating Board (Badan Koordinasi Penanaman Modal or “BKPM”) Chairman Regulation No. 14 of 2015 regarding Guidelines and Procedures for Capital Investment Principle License (“BKPM Reg. 14/2015″). This regulation provides that investors wishing to establish a company in Indonesia can obtain an Investment License within three hours, if the investment value is a minimum of 100 billion Rupiah and/or the investment provides jobs for at least 1,000 Indonesian workers. The procedure to obtain this Investment License differs from the regular procedure to obtain a Principle License and other licenses from the BKPM. Apart from the Investment License, BKPM Reg. 14/2015 requires companies in certain service and business sectors to make a mandatory presentation to the BKPM prior to obtaining a Principle License. BKPM Reg. 14/2015 reduces the processing time for the Extension of Principle License and Amendment of Principle License, while extending the validity period of the Principle License to one to five years, depending on the type of business.

The second package also included BKPM Chairman Regulation No. 19 of 2015 regarding the Amendment of BKPM Chairman Regulation No. 13 of 2015 regarding Procedures to Apply for a Tax Holiday (“BKPM Reg. 19/2015″). BKPM Reg. 19/2015 reduces the time required to obtain a proposal/recommendation for a tax holiday to 25 days from receipt of the completed application and supporting documents.

Apart from these regulations, the second package included plans to simplify certain permits in the forestry sector and to establish a Bonded Logistics Center, with the stated aim of making the production and distribution of forestry products more efficient. It also contained a plan for exporters to reduce the tariff for export foreign exchange (Devisa Hasil Ekspor or “DHE”) to 0% within six months if the DHE is deposited in Indonesian banks. While there have been discussions around these plans, no regulations have yet been issued.

c.         Third Package

The third policy package was released on October 7, 2015, with an eye on achieving faster investment growth in Indonesia. It revised rules pertaining to service standards and agrarian, spatial layout and land matters in capital investment activities. This was translated into action with the issuance of  Minister of Land and Spatial Planning Regulation No. 17 of 2015 regarding Standard of Service and Arrangement of Agrarian, Spatial Layout and Land in Capital Investment Activities, which aims to accelerate the process for certain land-related applications. This third policy package also provides an incentive in the form of a gas price reduction for certain gas, petrochemical and ceramics companies. That incentive took effect January 1, 2016.

d.         Fourth Package

About a week after the third package, the Government announced the fourth policy package. This package contained Government Regulation No. 78 of 2015 regarding Wages (“GR 78″). GR 78, among other things, contained provisions on Provincial Minimum Wages (Upah Minimum Provinsi or “UMP”), including the formula to calculate minimum wages beginning in 2016, taking into account inflation and economic growth for the current year. The new minimum wage formula is generally seen as a positive development in that it will take the uncertainty out of annual minimum wage increases, providing a more stable business environment. Eight provinces are exempted from the minimum wage formula. They are West Nusa Tenggara, East Nusa Tenggara, Gorontalo, Central Kalimantan, West Sulawesi, Maluku, North Maluku and West Papua.

e.         Fifth Package

The fifth policy package, which was announced on October 22, 2015, looks to boost the real estate market by eliminating double taxation on Collective Investment Contracts (“CIC”) for real estate investment trusts (also known as Real Estate Investment Trusts or “REITs”). Under this proposal, subject to the fulfillment of certain requirements, qualified CIC will not be subject to certain income tax for dividends received from a special purpose company.

f.          Sixth Package

The sixth package was announced on November 7, 2015. This package concerns the plan to grant additional facilities for Special Economic Zones. This includes (i) a 20% to 100% income tax reduction for certain periods and subject to conditions; (ii) the waiving of Value Added Tax (“VAT”) and VAT for luxury goods within Special Economic Zones for certain activities/transactions; (iii) a 50% to 100% reduction of construction tax (pajak pembangunan) for some tourism activities, subject to specific conditions; and (iv) permission for foreigners to own property within a Special Economic Zone. In addition, a Special Economic Zone Administrator is authorized in some circumstances to issue principle and business licenses, as well as some non-licenses.

g.         Seventh Package

In December 2015, the central Government announced the seventh and eighth economic packages. The seventh package, being announced on December 4, 2015, consists of a plan to prepare a revision of Government Regulation No. 18 of 2015 regarding Income Tax Facilities for Capital Investment in Certain Lines of Business and/or in Certain Regions, to enable additional labor-intensive industries (mostly being certain footwear industries) to benefit from tax allowance facilities.

h.         Eighth Package

The eighth package, announced on December 21, 2015, plans to revise the attachment of Minister of Finance (“MOF”) Regulation No. 132/PMK.010/2015 regarding the Third Amendment of MOF Regulation No. 213/PMK.011/2011 regarding Determination of Goods Classification System and Imposition of Import Duty Tariff on Imported Goods. The revision aims to include certain aircraft spare parts as among the goods exempted from import duty.

i.          Ninth Package

The ninth package, announced on January 27, 2016, is intended to accelerate the construction of electricity infrastructure. Through Presidential Regulation No. 4 of 2016 regarding the Acceleration of the Construction of Electricity Infrastructure, the President designates PT PLN, the state-owned electricity company, to implement the acceleration of construction of electricity infrastructure. The package also plans on regulating the mandatory use of Rupiah under a rate that is governed by Bank Indonesia for logistical activities such as sea transportation and storage.

j.          Tenth Package

The Government announced the tenth economic package on February 11, 2016. This package consists of a plan to revise the Negative Investment List (Daftar Negatif Indonesia or “DNI”) through a Government Regulation. Under this plan, distributor and warehouse business fields would now open for 67% foreign shareholding (previously 33%), while the cold storage business field would be open for 100% foreign shareholding (previously 33%). Ground public transportation and high/extra-high voltage electricity utilization installation, previously closed for foreign ownership, would be open for 49% foreign shareholding. The restaurants business field, which previously only could be 51% owned by foreign shareholder, would be open to 100% foreign shareholding. Construction services with value of work exceeding 10 billion Rupiah would be open for 67% foreign shareholding (previously 55%). Telecommunications network providers integrated with telecommunications services, previously limited to 65% foreign shareholding, would be open to 67% foreign shareholding. The drug ingredient manufacturers business field that was previously limited to 85% foreign shareholding would be open to 100% foreign shareholding. And the toll road concession, laboratory testing institution, telecommunications device testing institution business fields would be open for 100% foreign shareholding (previously 95%).

k.         Eleventh Package

The eleventh economic package was released on March 29, 2016, and consists of four main policies. The first policy concerns the planned introduction by the Government of a program for export-oriented business credits for small businesses (kredit usaha rakyat or “KUR”). The program would allow micro, small and medium businesses that produce goods for export to receive KUR with 9% interest. Under the second policy, in the framework of real estate investment fund, the Government has decreased the final income tax for real estate property sales, from 5% to 0.5%.  The next policy relates to dwelling time at ports, whereby the Government would prepare one standard for the evaluation of goods (Indonesia Single Risk Management or “ISRM”) to ease the loading and unloading process at ports. The last policy in this package is being prepared with the aim to lessen the pharmaceutical industry’s dependency on imported raw materials. A specific presidential instruction is expected to be issued in relation to this last policy.

Conclusion

Overall, Jokowi’s Economic Package is packed with a long list of regulations and plans. While the response has been largely positive a final verdict will have to await the implementation of all these changes.

This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.

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