Ogan Komering Ilir Pulp & Paper Mills (OKI), a unit of the Sinar Mas Group, has been granted a tax holiday by the Indonesian government for a period of eight years. Other companies that were awarded tax incentives are Unilever Oleochemical Indonesia, Petrokimia Butadine Indonesia, and Energi Sejahtera Mas. Through these incentives the government of Indonesia aims to make Indonesia more attractive for long-term investment thus boosting the nation’s sluggish economic growth.
Gandi Sulistyanto, Managing Director of the Sinarmas Group Holding, said that after the eight year period in which the company gets an income tax reduction, another two years are added in which income tax is reduced by 50 percent. Sulistyanto said OKI can now focus on completing its new paper mill in the Ogan Komering Ilir regency (South Sumatra) as well as additional supporting infrastructure such as new roads (which can also be used by the local population). These projects, which require approximately USD $2 billion worth of investment, should be completed by the end of 2016.
The Sinar Mas Group, established in 1962, is one of the largest conglomerates in Indonesia with activities in various sectors such as pulp & paper, real estate, financial services, agribusiness, telecommunications, and mining. Several subsidiaries of the Sinar Mas Group are listed on the Indonesia and Singapore stock exchanges.
The tax holiday that has been awarded to the four companies is based on the issuance of the revised tax-holiday regulation 159/PMK.010/2015 (revised on 14 August 2015) by the Indonesian Finance Ministry. The revised regulation states that institutional taxpayers that provide new investment in pioneering industries (petrochemicals, machinery, agricultural, maritime transport and upstream oil and gas industries), with a minimum investment of IDR 1 trillion (approx. USD $71 million), are eligible for an income tax reduction facility (between 10-100 percent) for a period of between five and 15 years. An exclusion is made for telecommunication firms. These companies can apply for the tax holiday with a minimum investment of IDR 500 billion (USD $35.7 million).
The government is currently studying requests for tax incentives from Indorama Polychem Indonesia, Caterpillar Indonesia Batam, Feni Halim, Well Harvest Winning Alumina Refinery, Synthetic Rubber Indonesia, Sulawesi Mining Investment, and Sateri Viscose International.
The Indonesian government is eager to boost economic growth through new (foreign and domestic) investment. Since 2011 Indonesia’s economy has been cooling due to external factors (sluggish global growth and weak commodity prices) and internal factors (high interest rate environment). In the second quarter of 2015 the nation's GDP growth fell to a six-year low of 4.67 percent (y/y). Recently, Indonesian Finance Minister Bambang Brodjonegoro said that the government needs to push for downstream development in natural resources-based industries and those industries that have large domestic markets (which include the telecommunications, maritime, and oil & gas sectors). Indonesia is currently still too dependent on primary commodity exports (which makes the country highly susceptible to the effects of volatility in commodity prices on the global commodity market).
Tax Holiday Granted to the Following Companies:
|Ogan Komering Ilir Pulp & Paper Mills||USD $2 billion|
|Unilever Oleochemical Indonesia||USD $82 million|
|Energi Sejahtera Mas||USD $200 million|
|Petrokimia Butadine Indonesia||USD $120 million|
Among those four companies that have been awarded the tax holiday, OKI is set to invest the highest amount of funds as it is developing its new mill and supporting infrastructure in an area that is categorized as a “remote area”.