The relaxation of the tax holiday and tax allowance is intended and expected to attract more investors to Indonesia. Previously, both types of incentives have not been able to attract many investments because of the strict requirements involved. The tax holiday has been available since 2010, but up to the present only three companies were able to benefit of it. Regarding the tax allowance, available since 2007, only 85 investors received it (data from Indonesia's Ministry of Finance 2012).

Indonesia targets the realization of IDR 504 trillion in investments in 2014. As such, investments play an important role in Indonesia's economic growth (besides the country's vibrant domestic consumption). However, the investment target faces big challenges due to a number of classic problems in Indonesia which include poor infrastructure, severe bureaucracy, land right issues, and corruption. In Q1-2013, investments showed a significant slowdown and grew 5.9 percent only, down considerably compared to the first quarter of 2012 when it reached 9.9 percent.

1. Tax Holiday

Based on Finance Ministry Regulation (PMK) No. 130/PMK 011/2011 regarding the provision of the exemption or reduction of income tax, a tax holiday will be given for 5 to 10 years in the form of corporate income tax cuts. The tax holiday will only be given to the following five industrial sectors:

a. Basic metals
b. Petroleum refining and/or basic chemicals derived from petroleum and natural gas
c. Engineering industries
d. Renewable resources
e. Communications equipment

No. 130/PMK.130/2011 mentions that the tax holiday is given in case of minimum investments of IDR 1 trillion (USD $98 million). However, a new revision will also allow the tax holiday to be provided to investments below IDR 1 trillion if the investment is able to absorb a large workforce. The benefit of the tax holiday will also be determined by the amount of investment: the greater the investment, the longer the tax holiday period.

2. Tax Allowance

Based on Government Regulation (PP) No.52/2011, there are 129 types of businesses that are given a tax allowance.