Effective immediately, the government of Indonesia introduced a new tax incentive that makes it more attractive for companies to revalue their fixed assets. Previously, companies had to pay a ten percent tax on the company's fixed asset growth. As a result, companies tended to refrain from increasing the level of fixed assets resulting in limited tax revenue. The Indonesian Finance Ministry said that companies will only have to pay 3 percent tax on the increased amount, provided that they submit their proposals for fixed asset revaluation before the end of this year.
When companies submit proposals in the first half of 2016, then they have to pay a 4 percent tax, while a 6 percent tax will apply for those that submit proposals in the second half of 2016. This tax incentive is part of a fifth round of stimulus measures announced by the government. Through these measures it aims to spur economic growth which has slowed to the six-year low of 4.67 percent in Q2-2015. Statistics Indonesia (BPS) will announce the official Q3-2015 GDP growth figure on 5 November 2015. Indonesian Finance Minister Bambang Brodjonegoro expects that the country's GDP growth will be around 4.85 percent (y/y) in Q3-2015.
It has been reported that some state-owned companies' fixed assets have been undervalued (far below current market prices) because they were obtained decades ago. The new tax incentive makes it tempting to revalue assets, hence increasing companies' leverage. With higher-valued assets and larger capital, these companies can borrow more from banks, hence having more room to invest.
The Indonesian government is also set to scrap double taxation on real estate investment trusts that are being established in Indonesia in an effort to boost the domestic capital market.
The new tax incentives are expected to boost investment in Indonesia. Earlier today (22/10), the Indonesia Investment Coordinating Board (BKPM) announced that total investment (domestic and foreign direct investment) in Indonesia rose 17 percent (y/y) to IDR 140.3 trillion (approx. 10.3 billion) in the third quarter of 2015. Foreign direct investment (FDI) into Indonesia climbed 18.1 percent (year-on-year) to IDR 92.5 trillion (approx. USD $6.85 billion) in rupiah terms in the third quarter of 2015, nearly the same as growth in the preceding quarter. Although in rupiah terms, FDI in Indonesia grew, they fell in US dollar terms. In US dollar terms, FDI inflows into Indonesia fell 0.8 percent (y/y) to USD $7.40 billion (The BKPM uses a fixed IDR 12,500 per US dollar exchange rate, while in reality the rupiah has weakened to IDR 13,640 per US dollar).
Foreign and Domestic Investment in Indonesia (in IDR trillion):
|Domestic Direct Investment||34.6||38.2||41.6||41.7||42.5||42.9||47.8|
|Foreign Direct Investment||72.0||78.0||78.3||78.7||82.1||92.2||92.5|
|Domestic Direct Investment||14.1||18.9||19.0||24.0||19.7||20.8||25.2||27.5||27.5||33.1||33.5||34.1|
|Foreign Direct Investment||39.5||43.1||46.5||46.2||51.5||56.1||56.6||65.5||65.5||66.7||67.0||71.2|
Source: Indonesia Investment Coordinating Board (BKPM)
After one year in office, how do you feel about Joko Widodo's performance?
Voting possible: -
- Weak global conditions make it tough for Jokowi (52.2%)
- In the 1st year he laid new foundations; he's done well (22.6%)
- He should toughen up to ramp up public spending (20%)
- No opinion (5.2%)
Total amount of votes: 115