Indonesia poised to settle land, tax woes for labour-intensive projects

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BUSINESS

Khoirul Amin
The Jakarta Post   SUN, 24 JAN, 2016 6:15 PM

JAKARTA – The government is optimistic that realized investment in labour-intensive industries will rise this year and beyond if land procurement issues are settled and tax allowances for the industrial sector are agreed on.

Investment Coordinating Board (BKPM) head Franky Sibarani said Thursday that investment in labour-intensive industries would probably increase, if the government could soon settle land issues and grant allowances on income tax.

“While a number of factors have attracted investment commitments in the labour-intensive sector […], there are still some hurdles in actualizing those commitments,” he said at a press conference.

He said that his agency would focus on pushing the government to immediately provide a definitive regulatory framework on land booking and tax allowances for labour-intensive industries.

A number of potential investors in labour-intensive industries had run into problems with obtaining land, mostly due to price increases and uncertain regional spatial planning, he said.

Franky said the BKPM would expedite the implementation of its three-hour business licensing procedure, in which it would also allow potential investors to obtain land-procurement letters issued by the Agrarian and Spatial Planning Ministry.

In addition, the government is reviewing options to slash income taxes for labour-intensive industries.

Under current regulations, a taxpayer with annual income of less than Rp 50 million (US$3,606) is subject to 5 percent income tax, while a tax of 15 percent is applied to annual income between Rp 50 and Rp 250 million, 25 percent for Rp 250 to Rp 500 million and 30 percent on annual salaries of more than Rp 500 million.

Franky said the BKPM expected a new regulation to slash income tax to be issued this year.

Investment realization in labour-intensive industries had remained low last year, despite investment commitments in the sector having grown strongly, he said.

labour-intensive industries performermed poorly last year, with actual investment in the segment plunging by 12 percent to Rp 55.5 trillion, while investment in other industries rose, according

to BKPM data.

However, investment commitments in the sector recorded the strongest growth last year with a 274 percent increase to Rp 214 trillion, the data show.

Franky said the surge in investment commitments was mainly due to the government’s shake-up of business regulations and the country’s intention to join trade partnerships like the Indonesia-EU Comprehensive Economic Partnership Agreement (CEPA) and the US-led Trans-Pacific Partnership (TPP).

Business players believe joining the TPP, which is currently in the process of ratification in the 12 signatory countries, would benefit Indonesia’s textile and garment industry, as it would make domestic industries competitive against those of signatory parties like Vietnam.

Indonesia recorded a 17.8 percent increase year-on-year to Rp 545.45 trillion in realized investment, surpassing the target of Rp 519.5 trillion. This year, BKPM eyes investment of Rp 594.8 trillion.

Azhar Lubis, BKPM’s deputy director for investment monitoring and implementation, said the largest chunk of foreign direct investment last year was from Singapore, followed by Malaysia and Japan.

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