The tax office has collected only 60 percent of its full-year target with only two months left to meet its goal. (Antara Photo/Zabur Karuru)

Indonesia Lures Investors With More Flexible, Faster Tax Allowance Process


MAY 05, 2015

Jakarta. Indonesia’s Investment Coordinating Board, or BKPM, has eased requirements for investors to apply for a facility that allows them to reduce their income tax over a certain period.

BKPM also cut the time needed to process a company’s application for the facility, known as tax allowance, to 28 working days from up to two years previously, as the country attempts to attract more local and foreign investment.

“This will be a much more certain process, more accountable in terms of the time needed. The government will work harder to ensure certainty for investors,” BKPM chief Franky Sibarani said on Monday.

The BKPM regulation states that individual and businesses of any kind can now apply for the facilities. The previous regulation only allowed limited-liability companies to be the applicants.

The latest BKPM regulation complements a 2015 government regulation that eases tax allowance requirements. Both regulations will become effective on Wednesday.

The government regulation also scraps the requirement for companies to invest a certain amount of funds while creating hundreds of jobs. Still, an export-oriented company that absorbs local workforces and uses more local raw materials has a better chance at being granted the tax incentive.

Separately, Sofyan Djalil, the coordinating minister for economic affairs, said the Finance Ministry and Industry Ministry also have decrees in place to support government regulation on the tax allowance.

Some businessmen appreciate this step, saying that the new regulation is better than none at all.

“The regulation is not as stiff as it used to be. In a situation like this, nobody wants to invest under [previous] regulation. At least, the government has offered something,” said Hariyadi Sukamdani, chairman of the Indonesian Employers Association (Apindo).

The government needs to boost exports from Indonesia, so it is important to give incentives to exportoriented investors, while maintaining a certain balance on their rights and obligations, Hariyadi said.

Hariyadi says that so far he has seen progress in terms of the investment plan, but he will “wait and see for the plan to be implemented.”

Some economists, though, had different views.

The tax allowance will be effective in luring lure investments in the long term,but not quite effective on a short-term basis, said Ryan Kiryanto, chief economist at state-controlled lender Bank Negara Indonesia.

“The most important thing is the government’s ‘spirit’ to be more supportive in business and investment sector. The other important thing is that the government should not change its regulation so often,” said Ryan.

Under the tax allowance policy, companies can reduce their income tax payments using several accounting techniques. The companies can deduct up to 30 percent of their initial investment value from net income over a six-year period. They can also carry forward their loss for up to 10 years or implement the accelerated depreciation method. If the investor is a foreign entity, it only pays a tax rate of 10 percent or lower, depending on the tax agreement between Indonesia and its respective countries.