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Today's Headlines Ease of Doing Business
For the past couple of years we have often heard high government officials in Indonesia say that the country’s corporate income tax (in Indonesian: Pajak Penghasilan Badan, or PPh badan) is planned to be cut in an effort to attract more direct investment.
Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), said investors continue to complain about the difficulty of obtaining all necessary investment permits in the regions of Indonesia even though, generally, there has been an improvement in the degree of bureaucracy under the Joko Widodo administration.
Indonesia's improving ranking in the World Bank's Ease of Doing Business Index shows that the government's reform efforts have had a positive effect. However, there is no time for complacency as most industries in Indonesia continue to lack competitiveness compared to regional counterparts, while many entrepreneurs in Indonesia continue to complain about (the lack of) legal certainty as well as (the lack of) good coordination and cooperation between Indonesia's central and regional governments (in terms of policy implementation).
The Indonesian government released the 12th economic policy package on Thursday (28/04). This latest edition focuses on enhancing the ease of doing business for the small and mid-sized companies in Indonesia in a bid to attract more investment, hence giving a boost to economic growth. In the 12th package the government announces it has cut a number of procedures and permits, as well as costs, required for the development of a business. Indonesia's Chief Economics Minister Darmin Nasution unveiled the package on Thursday in Jakarta's Presidential Palace.
The government of Indonesia plans to unveil its 12th economic stimulus package next week. This 12th package will deal with the simplification of permits for the country's small and medium-sized enterprises. Indonesia's Chief Economics Minister Darmin Nasution said regional governments are still applying regulations designed by the central authorities although policy-making as well as the execution of these policies have been transferred to the regional authorities (in line with the nation's switch to regional autonomy, or decentralization of governance, in the Reformation era).
The Indonesia Investment Coordinating Board (BKPM), the central government's investment services agency, targets to see a 15 percent growth to IDR 594.8 trillion (approx. USD $43 billion) in investment realization in 2016 supported by an improving investment climate in Southeast Asia's largest economy. Franky Sibarani, Head of the BKPM, said the government is particularly eager to see sharp growth in investment realization in the country's manufacturing sector, in infrastructure, services and trade, and in the raw resources industry.
Indonesia improved 11 positions in the World Bank Doing Business 2016 ranking. Southeast Asia's largest economy jumped from rank 120 in the (revised) 2015 index to 109 in the 2016 ranking. The 'Doing Business 2016: Measuring Regulatory Quality and Efficiency' is an annual flagship publication of the World Bank, monitoring the regulations that enhance the ease of doing business in the following areas: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
Latest Columns Ease of Doing Business
Indonesia continued to climb sharply in the World Bank's Doing Business Index. In the 2018 edition, which was released at the end of October 2017, Indonesia ranks 72nd, jumping 19 positions from being 91st in last year's ranking. The World Bank praised Indonesia and labelled it as the country that made the biggest improvements in business regulations among Asia Pacific nations since 2005.
Indonesia climbed 15 places in the World Bank's Ease of Doing Business index 2017 from 106 to 91, hence being among the ten biggest climbers. Overall, the World Bank saw a record 137 economies around the globe adopting key reforms that make it easier to start and operate small and medium-sized businesses. The World Bank released its latest index, titled “Doing Business 2017: Equal Opportunity for All” on Wednesday (26/10).
Infrastructure development and deregulation are the two main recipes used by the Indonesian government - under the leadership of Joko Widodo - to attract investment. By making it easier and cheaper to obtain permits and by providing better infrastructure (implying investors need to invest less in additional infrastructure facilities while logistic costs ease) Indonesia's investment climate improves. As such, the ease of doing business in Indonesia will improve accordingly. However, good coordination and cooperation between the central and regional governments is required.
The World Investment Report 2015 states that inflows of foreign direct investment (FDI) into Indonesia grew 20 percent (y/y) to USD $23 billion in 2014. As such FDI growth in Indonesia outpaced FDI growth recorded in Singapore (+4 percent y/y to USD $68 billion) and Vietnam (+3 percent to USD $9.2 billion), causing optimism that Indonesia - Southeast Asia's largest economy - will continue to form a lucrative investment destination in the Asian continent for foreign investors in the years ahead.
A survey released by The British Chamber of Commerce Indonesia (BritCham) showed that United Kingdom (UK) investors’ confidence on doing business in Indonesia in 2013 and 2014 dropped but is still positive overall. One hundred corporate and other members of BritCham, 95% of whom hold Senior Management posts, participated in this survey. The survey showed that 60% of the total respondents remained confident about their business in Indonesia, down from 83% in 2012, while the Ease of Doing Business score fell by 15% from 65% to 50%.
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