Each of the eight planned special economic zones will specialize in different economic activities, from palm oil production and processing, to petrochemicals to tourism. (Antara Photo/Yudhi Mahatma)

Indonesia Aims to Make SEZs a Tax Haven for Businesses


NOVEMBER 05, 2015

Jakarta. A package of stimulus measures meant to boost foreign investment into Indonesia calls for a high degree of liberalization in a series of planned special economic zones.

Hefty tax discounts of 20 to 100 percent are offered for companies that invest at least Rp 500 billion ($36.7 million), valid for   10 to 15 years, while companies that invest Rp 1 trillion can enjoy the tax holiday for up to 25 years, Cabinet Secretary Pramono Anung announced in Jakarta on Thursday.

The companies will also benefit from a waiver on value-added tax for goods going into and out of the SEZs, of which the government plans to set up eight: in Sei Mangkei in North Sumatra province; Tanjung Api-Api in South Sumatra; Maloy Batuta in East Kalimantan; Palu in Central Sulawesi; Bitung in North Sulawesi; Morotai in North Maluku; Mandalika in West Nusa Tenggara; and Tanjung Lesung in Banten.

Locally sourced raw materials used by the companies will be exempted from VAT, as will transactions between companies operating in the zones and luxury goods.

Meanwhile, goods produced in the SEZs will be exempt from VAT when sold elsewhere in the country, although they will be subject to customs and excise fees.

Tourism, restaurant and entertainment businesses operating in the SEZs will get a 50 to 100 percent discount on the entertainment tax.

Property ownership by foreigners will be unrestricted in the zones, but it remains unclear whether they can obtain title deeds (SHM) or simply a land use permit (HGB).

Each of the zones will specialize in different economic activities, from palm oil production and processing, to petrochemicals to tourism but so far only Sei Mangkei and Maloy Batuta have started operating.

The zones will be managed by a single administrator overseeing everything from business licenses and land use to immigration.

Minimum wage in the zones will be determined by a special committee comprised of officials from the SEZ administrator, companies and workers’ representatives.

Chief economics minister Darmin Nasution said the zones were aimed at “boosting industries which are based on local resources. However, [industries] which do not rely on local resources can also be developed.

“Hopefully this is the beginning of our bid to simplify the investment process into several regions,” he said.

Thursday’s announcements are the latest in a series of stimulus measures rolled out by President Joko Widodo’s administration since September, including lowering energy prices, cutting red tape and reforming the minimum wage formula.

Higher government spending and investment helped Indonesia’s struggling economy grow slightly faster in the third quarter, but not enough to show a real turnaround has begun.

Gross domestic product expanded 4.73 percent from a year earlier, the statistics bureau said on Thursday. That was faster than 4.67 percent in the previous quarter – the slowest pace in six years – but below a Reuters poll median of 4.79 percent.

Joko wants to attract more investment with incentives, but at the same time his government faces a shortfall in tax revenue expected to reach Rp 160 trillion this year.

Additional reporting from Reuters