The Indonesian government unveiled its sixth economic stimulus package on Thursday (05/11). This latest package involves tax incentives for investment in Indonesia's special economic zones. Special economic zones are defined as designated areas where natural resources (mined in or around the zone) are processed. Chief Economics Minister Darmin Nasution said investors can get income tax discounts of between 20 and 100 percent for a duration up to 25 years. These generous tax holidays are designed to attract investment in the country's manufacturing industry.
Moreover, foreign investors are allowed to own property in these special economic zones and investors will be able to import raw materials without being charged value-added tax (VAT). The government also set a minimum investment value in order to be eligible for these incentives. The investor needs to come up with at least IDR 500 billion (approx. USD $37 million) worth of investment to receive a tax holiday for a period up to 15 years, or IDR 1 trillion (approx. USD $74 million) for a period up to 25 years.
Furthermore, goods manufactured in these special economic zones are to be exempted from VAT when sold domestically, but remain subject to customs and excise fees. Tourism, restaurant and entertainment businesses operating in these zones receive a 50 to 100 percent discount on the entertainment tax.
Reportedly, investors from China and Singapore have already expressed interest to invest in these zones.
The Indonesian government assigned the special economic zone status to eight areas: Tanjung Lesung (Banten), Sei Mangkei (North Sumatra), Palu (Central Sulawesi), Bitung (North Sulawesi), Mandalika (West Nusa Tenggara), Morotai (North Moluccas), Tanjung Api-Api (South Sumatra), and Maloi Batuta Trans Kalimantan (East Kalimantan). Each of these zones will have a special focus, such as palm oil processing or tourism. Of these eight zones, Sei Mangkei and Maloy Batuta have already started operations.