17 February 2020 (closed)
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Recently, most attention has been paid to Indonesia's tax amnesty program launched last Monday (18/07), while the 12 economic policy packages - released between September 2015 and April 2016 by the Indonesian government - have been pushed to the background. These packages, which include tax incentives, deregulation, and somewhat open foreign investment opportunities in Indonesia, were implemented in a bid to boost Indonesia's economic growth. However, according to the latest information, not all 12 economic stimulus packages have been implemented in full force.
Economist Raden Pardede, who acts as chairman of a working unit that monitors the acceleration and effectiveness of these economic policy packages, said not all packages are running smoothly and there remain policies that need to be improved by the government. His working unit reported its findings to Indonesia's Economics Ministry on Tuesday (19/07).
One of the key problems that blocks the smooth implementation of the economic policy packages is the non-optimal involvement of regional governments. For example, in several cases deregulation measures have not been implemented by local governments as they do not see the advantage of such measures. Contrary to the situation when former president Suharto ruled Indonesia through his authoritarian New Order government, regional governments currently have much more power in the era of decentralization.
One example of a deregulation measure that is yet to be implemented effectively by regional governments is the integrated one-stop service center (Pelayanan Terpadu Satu Pintu, or PTSP) at the Indonesia Investment Coordinating Board (BKPM). Through this service investors (who meet specific criteria) can obtain their investment licenses within a three-hour period. Pardede said this service works well at the central level. However, at the regional level there is much room for improvement.
There could be psychological reasons behind such weak coordination and cooperation because the central government has not made local governments an intrinsic part of the plan. This could make these local governments less enthusiastic to make efforts. Pardede therefore says the central government should intensify communication with local governments concerning these packages and try to make it "a joined program" instead of simply asking local governments to implement the central government's program. Besides such intensification, the central government should also give some compensation to the regions, Pardede added.
This is where the real problem lies. By scrapping thousands of regulations that are considered bottlenecks to direct investment at the local level (12th package), local government officials have less opportunities to earn some extra money. Another example is the central government's decision to scrap double taxation on real estate investment trusts (from the fifth package). Local governments may be concerned to see less income from taxes due to this decision.
This is part of the 'mental revolution' that Indonesian President Joko Widodo once talked about during his successful presidential campaign in 2014 (although he used it in a much wider sense). The central government has been very eager to seek new ways to boost the economy as well as social development (examples are the tax amnesty program, the economic policy packages and enhanced infrastructure development). However, given the strength of the regions in the decentralized country, it needs the backing and support of the local governments. If not, these plans will not bear much fruit.
Indonesian Chief Economics Minister Darmin Nasution stated earlier this week that the government will complete and improve several deregulation measures that are set in the economic policy packages.
Progress Implementation of Indonesia's Economic Stimulus Packages:
Source: Indonesia's Coordinating Ministry for Economic Affairs
Economic Stimulus Packages of the Indonesian Government:
|• Boost industrial competitiveness through deregulation
• Curtail red tape
• Enhance law enforcement & business certainty
|• Interest rate tax cuts for exporters
• Speed up investment licensing for investment in industrial estates
• Relaxation import taxes on capital goods in industrial estates & aviation
|• Cut energy tariffs for labor-intensive industries|
|• Fixed formula to determine increases in labor wages
• Soft micro loans for >30 small & medium, export-oriented, labor-intensive businesses
|• Tax incentive for asset revaluation
• Scrap double taxation on real estate investment trusts
• Deregulation in Islamic banking
|• Tax incentives for investment in special economic zones|
|• Waive income tax for workers in the nation's labor-intensive industries
• Free leasehold certificates for street vendors operating in 34 state-owned designated areas
|• Scrap income tax for 21 categories of airplane spare parts
• Incentives for the development of oil refineries by the private sector
• One-map policy to harmonize the utilization of land
|• Single billing system for port services conducted by SOEs
• Integrate National Single Window system with 'inaportnet' system
• Mandatory use of Indonesian rupiah for payments related to transportation activities
• Remove price difference between private commercial and state postal services
|• Removing foreign ownership cap on 35 businesses
• Protecting small & medium enterprises as well as cooperatives
|• Lower tax rate on property acquired by local real estate investment trusts
• Harmonization of customs checks at ports (to curtail dwell time)
• Government subsidizes loans for export-oriented small & medium enterprises
• Roadmap for the pharmaceutical industry
|• Enhancing the ease of doing business in Indonesia by cutting procedures, permits and costs|