The government of Indonesia unveiled the second installment of its September economic policy package on Tuesday (29/09). The package is introduced in an attempt to boost economic growth in Southeast Asia’s largest economy and defend the ailing rupiah. Indonesia’s GDP growth slowed to a six-year low of 4.67 percent (y/y) in Q2-2015, while the rupiah has depreciated to a 17-year low against the US dollar. Capital outflows from Indonesia are the result of monetary tightening in the USA, low commodity prices and sluggish global economic growth (particularly China’s hard landing).
Indonesian Chief Economics Minister Darmin Nasution stated that with the second installment the government is making further efforts to make investing in Indonesia as attractive as possible. This is done through the simplification of permitting procedures, making the process to obtain investment permits faster and cheaper for investors. Minister Nasution said that the time required to process investment permits (for industrial estates only) will be cut from eight days to just three hours (involved documents that are processed in this short time frame are the principal business license, the notary deed of the company establishment, and the corporate tax registration number, abbreviated NPWP). However, this fast service will only be available to those companies that invest at least IDR 100 billion (approx. USD $7 million) and plan to employ at least 1,000 people. This is a remarkable improvement and in fact triggers questions whether this new time frame is realistic and whether the government can safeguard professional standards and practices when processing permits within just three hours. Furthermore, the processing of permits in the mining and geothermal sectors will be slashed from up to four years to just 15 days.
Meanwhile, Indonesian Trade Minister Thomas Lembong said that the Trade Ministry revoked four ministerial decrees and revised five regulations in an effort to support the economic policy package. One of the changes involves a regulation, to become effective in January 2016, which will relax import requirements in relation to importers' identification numbers. Furthermore, another revised regulation concerns Indonesian-language labels on imported products. The government will give more time to importers to attach such labels on products.
As reported previously, the Indonesian government will also cut income tax on the interest that exporters earn when they deposit their export proceeds in local banks. This will make it more attractive for exporters to keep their funds onshore hence boosting foreign exchange liquidity. Currently the income tax on bank interest (from deposit accounts) is 20 percent. The tax cut varies depending on whether deposits are US dollar or rupiah-denominated and on the maturity of the deposit.
Indonesian Finance Minister Bambang Brodjonegoro said that a 10 percent income tax will apply to one-month US dollar-denominated deposit accounts at local banks; 2.5 percent income tax for six-month deposits; and zero income tax for deposit accounts over six months.
Regarding one-month rupiah-denominated deposit accounts, a 7.5 percent income tax will apply; 5 percent income tax for three-month deposits; and zero income tax for six-month (or longer) deposits.
This second installment is part of three deregulation packages. On 9 September 2015, Indonesian President Joko Widodo unveiled the country’s first installment of the economic policy package. This first phase involved massive deregulation (and tax breaks) to boost investment. However, it failed to convince the market, particularly as these deregulation measures will only start to bear fruit in the middle-long term. Most market participants would like to see concrete results before becoming too enthusiastic about the economic package.
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