The coverage of the tax allowances will be expanded to 144 business sectors — including a number of sectors like shipbuilding, seaweed processing and export-oriented manufacturing — from 129 sectors at present.
Foreign firms that reinvest profits and enlarge businesses in Indonesia and those that develop capital goods to help reduce imports will also be eligible to enjoy the incentives.
A new government regulation (PP) to enable the new arrangement will be passed soon and take effect this month, according to Investment Coordinating Board (BKPM) chief Franky Sibarani.
“The business sectors that may obtain the tax allowances are those that have been in line with our investment priorities,” Franky said Wednesday.
Similar to the current arrangement, which is stipulated in government regulation No. 52/2011, investors can get a cut of taxable income of up to 30 percent of the overall investments carried out over six years. Under the same regulation, investors can receive accelerated depreciation, amortization and imposition of income tax of up to 10 percent for offshore taxpayers and an extension of forward losses from five to 10 years.
The wider scope of the tax allowances is set to help the government meet its target to collect direct investments totaling to Rp 3.5 quadrillion (US$269.62 billion) by 2019, more than double the figure recorded in the 2009-2014 period.
For this year, it expects to draw in Rp 519.5 trillion in investments, up 14 percent from last year. The role of direct investment, the second contributor to Indonesia’s economy, will be crucial to drive economic expansion throughout this year amid present weak exports.
The larger coverage of the facilities in the planned regulation, achieved by including firms that export at least 30 percent of their total output and reinvested their dividends in Indonesia as beneficiaries, will also support the government’s program to prop up the weakening rupiah, Asia’s worst-performing currency, that has dropped below the Rp 13,000 benchmark.
Franky further said that to make the tax allowance much more accessible, the government would simplify the selection process, set to take only 50 working days.
Currently, tax allowances are seen as unattractive by many investors largely because of the lengthy and complicated process they need to pass through before getting approval. Apart from that, the Finance Ministry has been considered very selective and rigid in offering the allowances, having only accepted a few firms for the facilities.
“Up to the present, the process is quite long, lasting a few months. And we agree that in the future it should not exceed 50 days. It will be much more simple too,” Franky said.
Under the new arrangement, the application for tax allowances will be submitted through the investment board, either directly or by email. The decision to grant the facilities or not will be deliberated by two main parties, the BKPM and the Finance Ministry, along with a few other related ministries, such as the Industry Ministry or the Agriculture Ministry.
