Fiscal Incentives for Investment In Indonesia

   

Investment is one of the biggest driving forces of a country’s economy. The Indonesian government has a strong commitment to increase investment realization in Indonesia. To attract investors, four things are needed, which are convenience, certainty, efficiency and transparency. With those four things in mind, the government through the Ministry of Investment/BKPM has decided to give fiscal incentives to attract foreign and domestic investors. A list of investment priorities has been provided by the government as a guide for future investors. Investors that invest in priority industries are entitled to fiscal incentives.

Fiscal Incentives for Investors

To better understand what priority industries are, it’s better to look at its definition as stated in the Presidential Regulation Number 49 Year 2021 concerning the Amendment of Presidential Regulation Number 10 Year 2021 concerning Investment Business Fields. According to the regulation, priority industries should meet these criteria: :

  • National strategic program/project
  • Capital intensive
  • Labor intensive
  • High technology
  • Pioneer industry
  • Export oriented
  • Research, development, and innovation oriented

Investors who invest in industries that meet these criteria are entitled to fiscal and non-fiscal incentives. The fiscal incentives consist of tax incentives and customs incentives. Tax incentives include:

  • Reduction of import duty tariffs
  • Tax Allowance
  • Tax Holiday
  • Investment Allowance
  • Super Deduction for Research and Development
  • Super Deduction for Vocation

Other perks that will be given are in the form of ease of licensing, provision of supporting infrastructure, guarantee of energy availability, guarantee of availability of raw materials, immigration, employment, and other facilities in accordance with the provisions of the legislation.

Open and Closed Industries for Investment

Before investing, it’s important to know that Indonesia has a list of industries that are closed for investment. Getting to know what they are will help avoid trouble in future. Article 2 section 1 of Presidential Regulation Number 49 Year 2021 states that all industries are open for Investment, except those declared closed for investment and activities that can only be carried out by the Central Government.

Article 2 section 2 of the Presidential Regulation further explains what industries are closed for investment. Those industries are:

  1. Business Fields that cannot be cultivated as stated in Article 12 of Law Number 25 Year 2007 concerning Investment as amended by the Law Number 11 Year 2020 concerning Job Creation

  2. Alcoholic Beverage Industry, Alcoholic Beverage (Wine) Industry, and Malt Beverage Industry.

Tax Holiday for Investors

Out of the several forms of fiscal incentives that are offered, two are more commonly discussed than others, which are tax holiday and tax allowance. Tax holiday can be interpreted as a tax exemption policy granted by the state to companies that are newly established in that country. Generally, tax holiday policies are limited to a certain period of time. The tax holiday is related to investment for newly made investments, while the tax allowance is given to investments from an existing business.

During the years 2012 to 2015, the tax holiday only managed to bring in an investment plan of Rp 32.25 trillion. However, throughout 2018 and 2021, the tax holiday regulated in the Minister of Finance Regulation Number 130 Year 2020 succeeded in bringing in an investment plan of IDR 1.287 trillion. The increase was mainly due to the tax holiday schemes which were made easier to obtain.

The tax allowance has also had several improvements made. These facilities have been refined and streamlined, thereby successfully increasing investment plans to Indonesia. Since the regulation of tax facilities written in Minister of Finance Regulation Number 78 Year 2019 and amended by Minister of Finance Regulation Number 96 Year 2020, there has been IDR 26.67 trillion investment plans that Indonesia has encountered Indonesia. Overall, there are 166 business sectors in various investment locations in Indonesia that have enjoyed the tax allowance.

Hopefully, improvement and simplification of the process of obtaining fiscal incentives can attract investors to invest in Indonesia. Potential investors can take advantage of this opportunity to immediately invest in priority industries in Indonesia.