Dozens of Policy Packages on the Move as Govt Continues to Improve Investment Climate

The government could look back happily at a host of policy reform packages in the past two years that have improved investment climate. (Antara Photo/Puspa Perwitasari)

By : Tabita Diela | on 8:55 PM December 28, 2016
Category : Business, Economy

Jakarta. As the end of the year approaches, the government could look back happily at a host of policy reform packages in the past two years that have met some of its goals in improving investment climate by introducing simpler regulations, easier procedures and a series of fiscal incentives.

The government has so far revamped 202 regulations out of the promised 204 regulations in the policy reform packages. The government has also made some changes in 26 technical regulations.

"We've released 99 percent of the new regulations, but there are still issues with disseminating them in the field," Chief Economic Minister Darmin Nasution said.

This year, the government released six policy packages — bringing the total to 14 packages — ranging from providing electricity infrastructure, scrapping negative investment list, supporting pharmaceutical industry, lowering tax on real estate investment trusts, cutting permit procedures to 49 from 94 procedures previously, cutting procedures to building low-cost housings to a roadmap for e-commerce development in the country.

The packages have managed to improve Indonesia's image in the global business community.

Indonesia now is now ranked 91 out of 190 countries assessed in the World Bank's report on doing business, up 15 places from the previous list thanks in part because starting a business in the country has become much easier under the simplified bureaucracy. 

The policy reform drive has also increased the government's confidence in meeting its investment target. Indonesia's Investment Coordinating Board, the BKPM, is seeking to collect Rp 594.8 trillion ($44 billion) in investments outside the banking, oil and gas sectors this year and Rp 631.5 trillion next year.

Real results

Other results of the policy reform are more tangible, such as the current availability of 28 bonded logistic centers to pile up products from foreign or local customs zones before they can be exported or redistributed.

These storage facilities can reduce costs by up to $5 million annually for businesses, according to Finance Minister Sri Mulyani.

The government has also opened new special industrial areas in several locations, including in Kendal, Demak and Ungaran in Central Java.

The government has so far set up 10 special economic zones, out of 25 planned to be opened by 2019. These special zones, known locally as KEK, offer fiscal facilities for import duties on machineries, goods and materials.

KEKs also offer a series of tax exemptions, including luxury goods VAT exemptions, import duty exemptions, free import tax and a reduced land and building tax.

According to data from the Coordinating Economic Ministry, investors have invested a total of Rp 33.88 trillion in these zones as of the end of June this year.

"Big Bang" liberalization

The government has also lifted the ban on foreign capital for 141 industries – including energy, manufacturing, tourism, agriculture, information and technology and transportation – to attract more investments.

President Joko "Jokowi" Widodo described this move as a "Big Bang" liberalization of Southeast Asia's largest economy.

Fast-moving bureaucracy

The government now provides investors seeking to start a business in Indonesia with a three-hour licensing service. 130 companies so far have used this service with total investments of Rp 291 trillion as of October this year.

Micro, small and medium enterprises (SMEs) have also been given a special incentive: they now need only a business license and a company certificate – which are issued together – and a deed of the establishment to start up a business.

This is a great improvement on the old system that involved a 13-step procedure in 47 working days and can cost up to Rp 7.8 million, leaving some SMEs no choice but to start a business without a license.

The central government also had a hand in 14 provinces finally implementing its benchmark minimum salary for factory workers.

Chief Economic Minister Darmin said he will roll out another policy package early next year with a focus on improving logistics, such as devising a shorter dwelling time in seaports by integrating data checking across several authorities in each port.


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