Here’s What to Know About Indonesia’s Investment Law Overhaul

Indonesia has approved its first omnibus law, a 905-page document aimed at cutting red tape to boost investments and create jobs.

The bill has been dogged with controversy since it was announced last year, with workers and investors raising concerns over labor rights and environmental protection. It also creates the basis for an unemployment fund and a sovereign wealth fund, while raising penalties for damaging forests.

a group of people walking down the street: Workers transport carts loaded with boxes at Tanah Abang market in Jakarta, Indonesia, on Tuesday, Aug. 4, 2020. Indonesia is scheduled to announce its second-quarter gross domestic product (GDP) figures on Aug. 5.
Workers transport carts loaded with boxes at Tanah Abang market in Jakarta, Indonesia, on Tuesday, Aug. 4, 2020. Indonesia is scheduled to announce its second-quarter gross domestic product (GDP) figures on Aug. 5. -© Bloomberg

The government rushed the law’s approval on Monday, as President Joko Widodo seeks to shore up an economy that’s set for its first annual contraction since 1998.

Here are a few of the key changes:

Investments

The government has cut the list of industries banned from getting private investment to just six: controlled drugs, gambling, catching endangered fishes, harvesting of corals, manufacturing chemical weapons and industrial chemicals. That’s down from a list of more than 300 restricted or banned sectors previously set out in its so-called negative investment list.

It’s also easier to get a business permit, now centralized through the Investment Coordinating Board. Low-risk businesses only need an identity number to operate, while high-risk ones are required to get a full license.

Non-Indonesians can own freehold apartments, instead of only leasehold property.

Taxation

The law scraps dividend taxes if the funds are reinvested locally. The central government also has the right to intervene in tax and levy policies set by regional governments in order to support national priority programs. An earlier rule has said corporate income tax will be gradually cut to 20% in 2023, from 22% this year.

Sovereign Fund

Jokowi has asked the cabinet to prioritize the new sovereign wealth fund, set to begin with 75 trillion rupiah ($5 billion) capital made of cash, shares in state-owned companies and state receivables. It aims to attract 225 trillion rupiah of investments. The fund will report directly to the president with the finance minister’s oversight, while its management committee will include three professional directors.

Photographer: Bay Ismoyo/AFP via Getty Images

Labor Rules

An unemployment fund will be set up tocover as many as six months of wages, while cutting the maximum severance pay borne by employers to 19 months of salary, from 32 months. The fund will also pay for training and provide access to the job market. The law exempts small- and medium-sized enterprises from minimum wage requirements.

Environment

The law returns the authority over land use and permits to the central government and sets up a one-map policy to resolve the issue of overlapping claims. Environmental permits are now merged with business permits, with only high-risk industries asked to submit a study on the impact to its surroundings. The law raises maximum fines for environmental damage — those who burn forests could face up to 15 years imprisonment and a 7.5 billion rupiah fine, from 5 billion rupiah previously.

By : Grace Sihombing and Arys Aditya – BLOOMBERG

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