Indonesia Update: Ministry of Industry to Offer Three Tax Incentives to the Manufacturing Sector

Indonesia Update | December 5, 2017
Authors: Kim Yaeger, Artha Sirait, Ian Saccomanno and Gaofan Zhang
 
THE COUNCIL'S TAKE
 
 

Ministry of Industry to Offer Three Tax Incentives to the Manufacturing Sector

In a bid to revive Indonesia’s manufacturing sector, Minister of Industry, Airlangga Hartarto stated that his ministry will provide three tax incentives to boost the industry in the country leveraging on low labor costs and a large population. The manufacturing sector’s contribution has declined in the past years despite being one of the biggest contributors to Indonesia’s economic growth according to the Central Statistics Agency. As of the first quarter of the year, the manufacturing sector contributed 0.92 percent to a total economic growth of 5.02 percent, followed by trade at 0.53 percent and construction at 0.51 percent. Within the manufacturing sector, the major contributors include oil & gas; food & beverages; metal, computer, electronics; transportation equipment and chemicals.

According to Minister Airlangga, the government is currently working on potentially offering a/an:

  • 200-percent tax allowance to the worker-training program investments;
  • 300-percent tax incentive to the innovative product investments; and
  • incentive to the export-oriented, labor-intensive industries.

The incentives are expected to attract more domestic and foreign direct investments into the manufacturing sector and help the workers in the sector improve their professional skills. The goal is to create more jobs in the country and strengthen the manufacturing sector, which is expected to be a major driving force of Indonesia’s economic growth. Minister Airlangga stated that such tax incentives have been discussed with President Joko “Jokowi” Widodo and Finance Minister Sri Mulyani Indrawati, both of whom agreed that investing in the manufacturing sector and its workers is important to the country’s continuing economic growth. The proposal is expected to be ready by the end of this year.

Government Amends Imports of Specific Products Regulation

On October 27, the Ministry of Trade issued Regulation No.81 of 2017, a second amendment to Ministry Regulation No.87/M-DAG/PER/10/2015 on Import Provisions for Specific Products (Regulation 87/2015). This amendment allows holders of General Importer Identification Numbers (Angka Pengenal Importir Umum – “API-U”) to import all types of specified products (click here for the list of products) as defined in Regulation 87/2015 via Bitung Seaport (Bitung, North Sulawesi). These products include food and beverages, traditional medicines, health supplements, cosmetics and household first-aid kits, apparel, footwear, electronic devices and toys were previously only permitted to come into Indonesia via certain seaports, dry ports or airports - including for importers with API-U.

Bitung as a new import entry gateway for a number of products is expected to ease the burden on Tanjung Priok Port in North Jakarta, the country's biggest port by volume thereby reducing the dwelling time. The Tanjung Priok Port handles the majority of Indonesia’s trans-shipment cargo traffic with an annual capacity of approximately 7 million twenty-foot equivalent units (TEUs); a two-phase extension port is currently under construction and when fully operational in 2024, is expected to be able to handle 19.5 million TEUs annually. This is also in line with the government's effort to make international trading activities more efficient.

The revised regulation is a result of the joint declaration between the Government of Indonesia and the Government of Philippines in April 2017, aiming to improve inter-ASEAN sea connectivity between Bitung and Davao/General Santos. There are approximately 14 import ports in Indonesia: Cikarang Port (West Java); Bitung Port (North Sulawesi); Belawan Port in Medan (North Sumatra); Tanjung Priok Port in Jakarta; Tanjung Emas Port in Semarang (Central Java); Tanjung Perak Port in Surabaya (East Java); Soekarno-Hatta Port in Makassar (South Sulawesi); Dumai Port in Riau; Jayapura Port in Jayapura; Kualanamu Airport in Deli Serdang; Soekarno-Hatta Airport in Tangerang; Ahmad Yani Airport in Semarang; Juanda Airport in Surabaya; and Hasanuddin Airport in Makassar. The original Regulation 87/2015 that came into force on January 1, 2016 aimed to simplify the rules of importing specific goods, including foods and beverages, medicines, health supplements, and cosmetics. The first amendment was made through N0.94/M-DAG/PER/10/2015 on October 22, 2015.

 
IN THIS UPDATE
 
 
Regional Affairs
indonesia, australia establish fintech network
EU, Indonesia agree to develop local products
BI issues export-import regulation using baht, ringgit

National Affairs
Hope for Indonesia to brighten all corners of nation
Indonesia's largest Muslim organisation warns against politicians using Islam to win votes
Indonesian President Joko Widodo nominates air chief marshal to replace controversial military head
Sri Mulyani expected to inaugurate new tax boss
Government tight-lipped about new tax chief
Rupiah exchange rate to reach Rp13,600 in 2018: INDEF

Economics
Gov't and Private Sector to Showcase Indonesia's Industrial Outlook at December Summit
Asia Pacific's rich-poor gap widens fastest in China, Indonesia
Indonesia to collect 90% of tax revenue target: CITA executive
Bank Indonesia launches national payment gateway
Tax office collects 78% of revenue target as of November
Indef refutes Jokowi's statement on purchasing power
Govt. Relaxes Submission Period for Mandatory Reporting by Gateways
Govt. Reamends Provisions on Imports of Specific Products

Energy
Pertamina's bind shows perils of petrol price controls
Indonesia, Denmark Strengthen Partnership in Renewable Energy Development
Indonesian Government promoting country’s geothermal business opportunity
Australia Set To Export Wind & Solar Energy To Indonesia
Mining holding company to acquire Freeport’s shares
Indonesia has 'no clear structure' for a Freeport deal yet

Financial Services
Indonesia's Central Bank is Planning to Ban Bitcoin in 2018: Report
Bank Indonesia to Ease Rules to Boost Loan Growth in 2018
Indonesian Banks More Optimistic on Loan Growth Next Year
OJK to issue new fintech regulation in March
Provisions on the Implementation of KYC Principles by Accountants Amended
Indonesia: New scheme to save AJB Bumiputera expected in 2018

Food & Agriculture
Opportunities for Indonesia's SVLK Certified Wood & Timber Exporters
Government prepares smallholder rubber plantation rejuvenation scheme
Indonesia wants WTO to regulate subsidies for large fishing firms
Indonesian Government plans for 1 million fishermen and farmers to go online by 2019
Indonesia replants oil palm trees on 9,109-ha land in N Sumatra
Ministry of Agriculture motivate STPP students to engage in agriculture
Agriculture Ministry to evaluate impact of floods
Russian food & beverage exporters eye Indonesian market

ICT
Indonesia's top telecom acquires Malaysian satellite company
Indonesia makes an aggressive leap into the world of e-commerce

Infrastructure
ADB to assist Indonesia with transport PPPs
Jokowi inaugurates Silangit International Airport

Manufacturing
Indonesia's manufacturing PMI rises to 50.4 in November
Manufacturing PMI Indonesia Improves Slightly in November
Indonesia to offer tax incentives to manufacturing industry: Minister
 
ARTICLE CLIPS
 
 
Regional Affairs

indonesia, australia establish fintech network Antara News 30th Nov 2017
Jakarta (ANTARA News) - The Indonesian delegation has met with Australia`s Financial Technology (Fintech) Association in Sydney and Melbourne, on Thursday to discuss a number of topics on financial inclusion and efforts to build a stronger fintech industry network.

EU, Indonesia agree to develop local products Antara News 30th Nov 2017
The European Union (EU) and Indonesia have agreed to develop local products for improving competitiveness among global nations, especially in the economic field. "The car industry in Indonesia can use metals from local production. Therefore, it needs to be developed. This agreement can enable competition of downstream products in Europe," Minister of Industry Airlangga Hartarto said in a press statement received here on Wednesday.

BI issues export-import regulation using baht, ringgit Antara News 27th Nov 2017
The central bank of the Republic of Indonesia, Bank Indonesia (BI), has issued technical regulations to settle trade transactions between Indonesia and Malaysia using Ringgit, as well as between Indonesia and Thailand using Baht, in order to reduce dependence on certain currencies and maintain exchange rate stability.

National Affairs

Hope for Indonesia to brighten all corners of nation The Jakarta Post 5th Dec 2017
The government has stressed its commitment to developing electricity infrastructure to provide access to power to all Indonesians, including those living in the country’s easternmost regions.

Indonesia's largest Muslim organisation warns against politicians using Islam to win votes Channel NewsAsia 4th Dec 2017
Indonesia’s largest Muslim organisation, Nahdlatul Ulama (NU), has warned that politicians who use Islam to win votes inevitably end up discriminating against minorities and provoking intolerance that can lead to religious conflict.

Indonesian President Joko Widodo nominates air chief marshal to replace controversial military head The Straits Times 4th Dec 2017
Indonesian President Joko Widodo has nominated the chief of staff of the air force to be the new head the armed forces (TNI), to replace a controversial general who is due to retire in April.

Sri Mulyani expected to inaugurate new tax boss The Jakarta Post 30th Nov 2017
Finance Minister Sri Mulyani Indrawati is expected to inaugurate the new director general of taxation on Thursday amid speculation that the government has appointed the ministry's financing and risk management director general, Robert Pakpahan, to fill the position.

Government tight-lipped about new tax chief The Jakarta Post 29th Nov 2017
The government has declined to reveal the name of the new director general of taxation after representatives of several government institutions held a meeting to carry out their final evaluation on Wednesday.

Rupiah exchange rate to reach Rp13,600 in 2018: INDEF Antara News 29th Nov 2017
The Institute for Development of Economics and Finance (INDEF) has forecast the average rupiah exchange rate next year to reach Rp13,600 per US dollar as compared to the government`s 2018 state budget target of Rp13,400.

Economics

Gov't and Private Sector to Showcase Indonesia's Industrial Outlook at December Summit Jakarta Globe 4th Dec 2017
The 2017 Indonesianisme Summit will be held on Dec. 9 at the Grand Sahid Jaya Hotel in Central Jakarta to showcase the country's future plan of developing domestic technology, manufacturing and infrastructure sectors.

Asia Pacific's rich-poor gap widens fastest in China, Indonesia Nikkei Asian Review 4th Dec 2017
One stereotype of Asian cities such as Jakarta and Manila is a stark juxtaposition between sprawling slums and gleaming shopping malls stocked with luxury goods -- an image with some accuracy, going by a new World Bank report.

Indonesia to collect 90% of tax revenue target: CITA executive The Jakarta Post 4th Dec 2017
Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo has estimated that, by the end of this year, the Directorate General of Taxation will collect 90 percent of the tax revenue target of Rp 28 quadrillion (US$89.85 billion).

Bank Indonesia launches national payment gateway The Jakarta Post 4th Dec 2017
Bank Indonesia (BI) on Monday launched the long-awaited national payment gateway, locally known as "Gerbang Pembayaran Nasional" (GPN).

Tax office collects 78% of revenue target as of November The Jakarta Post 1st Dec 2017
Director General of Taxation Ken Dwijugiasteadi said on Thursday that as of Nov. 30, his office had collected 78 percent of the Rp 1.28 quadrillion (US$89.85 billion) targeted tax revenue for 2017.

Indef refutes Jokowi's statement on purchasing power The Jakarta Post 30th Nov 2017
The Institute for Development of Economics and Finance (Indef) has refuted a statement made by President Joko “Jokowi” Widodo about the increase in people’s purchasing power, indicated by 12.1 percent value-added tax revenue growth.

Govt. Relaxes Submission Period for Mandatory Reporting by Gateways Hukum Online 27th Nov 2017
The Ministry of Finance (“Ministry”) has issued Regulation No. 141/PMK.08/2017 on Procedures for the Transfer of Taxpayer Assets to Indonesia and Their Placement within the Financial Market and External to the Financial Market under the Tax-Amnesty Framework (“Regulation 141/2017”) in a bid to achieve compliance with the regulation simplification program and to relax the submission period for mandatory reporting by gateways....

Govt. Reamends Provisions on Imports of Specific Products Hukum Online 27th Nov 2017
The Ministry of Trade (“Ministry”) has issued Regulation No. 81 of 2017 (“Second Amendment”), which is a second amendment to Ministry Regulation No. 87/M-DAG/PER/10/2015 on Import Provisions for Specific Products (“Regulation 87/2015”)...

Energy

Pertamina's bind shows perils of petrol price controls Nikkei Asian Review 4th Dec 2017
Indonesia's state-owned oil and gas company Pertamina took the unusual step in its recent earnings briefing of blaming the government's fuel price policy for robbing it of a significant amount of profit.

Indonesia, Denmark Strengthen Partnership in Renewable Energy Development Benzinga 4th Dec 2017
Indonesian Ministry of Energy and Mineral Resources (ESDM) on Wednesday co-organized the Clean Technology Roundtable Discussion at Hotel Raffles, Jakarta, in partnership with the Embassy of Denmark. The discussion was a part of the state visit of the Danish Prime Minister Lars Lokke Rasmussen to Indonesia.

Indonesian Government promoting country’s geothermal business opportunity Think GeoEnergy - Geothermal Energy News 4th Dec 2017
Through the Paris Agreement in October 2016, Indonesia made a commitment to reducing greenhouse gas (GHG) emission by 29% by 2030. This goal is supported by the continuous development in the new and renewable energy (NRE) that has been augmenting within their primary energy mix. Indonesia has the goal to incorporate 23% of NRE in their primary energy mix by 2025, and to 31% in 2050. With the abundant of untapped geothermal resources, Indonesia aims to reach installed capacity of 7,241.5 MW in 2025 and 17,546 MW in 2050. If the target is achieved, this could potentially position Indonesia to be the leading geothermal producer surpassing the current reigning geothermal producers such as the United States and the Philippines. Currently, there are 52 new Geothermal Working Areas (GWAs) on top of the existing 19 GWAs. This creates a great business potential for many stakeholders including investors and developers, both nationally and internationally.

Australia Set To Export Wind & Solar Energy To Indonesia CleanTechnica 1st Dec 2017
A coalition of renewable energy leaders has unveiled plans to build a 6 gigawatt wind and solar hybrid power plant in Western Australia with the sole intention of exporting its electricity production to its northern neighbor Indonesia via subsea electrical cables.

Mining holding company to acquire Freeport’s shares The Jakarta Post 30th Nov 2017
State-owned PT Indonesia Asahan Aluminium (Inalum), which has been appointed to lead a state-owned mining industry holding, has said that it will focus on purchasing 40.64 percent shares of gold and copper miner PT Freeport Indonesia (PTFI).

Indonesia has 'no clear structure' for a Freeport deal yet Reuters 24th Nov 2017
Indonesia’s Ministry of State-Owned Enterprises, tipped to oversee an acquisition of a majority stake in the local unit of Freeport-McMoRan Inc, has “no clear structure” yet for the deal, a ministry official said on Friday.

Financial Services

Indonesia's Central Bank is Planning to Ban Bitcoin in 2018: Report CryptoCoinsNews 4th Dec 2017
Bank Indonesia (BI), the country’s central bank, is drawing up regulation to enact a sweeping ban on all forms of cryptocurrency, their trading and their usage in transactions as payments, according to Agus Martowardojo – the governor of the central bank. According to local publication Pikiran Rakyat, the central bank official made the revelation during the central bank’s annual meeting last week, claiming the crippling regulation was required to maintain the sovereignty of the rupiah [Indonesia’s fiat currency] as the country’s legal tender.

Bank Indonesia to Ease Rules to Boost Loan Growth in 2018 Jakarta Globe 1st Dec 2017
Bank Indonesia, the country's central bank, is preparing new rules to ensure banks are able to manage liquidity better to boost loan growth to 10-12 percent next year.

Indonesian Banks More Optimistic on Loan Growth Next Year Jakarta Globe 1st Dec 2017
Indonesian commercial lenders are targeting a 13 percent loan growth next year, higher than the target set by by the country's central bank and Financial Services Authority — both projecting optimistic growth on the back of stronger economic conditions and expecting positive impact from ongoing infrastructure projects.

OJK to issue new fintech regulation in March The Jakarta Post 28th Nov 2017
The Financial Services Authority (OJK) aims to issue a regulation on financial technology (fintech) businesses by March next year amid robust development of the industry, OJK deputy commissioner Nurhaida said Tuesday.

Provisions on the Implementation of KYC Principles by Accountants Amended Hukum Online 27th Nov 2017
In a bid to comply with the recommendations made by the Asia-Pacific Group Financial Action Task Force (“FATF”),[1] the Ministry of Finance (“Ministry”) has issued Regulation No. 155/PMK.01/2017 (“Amendment”), which amends Ministry Regulation No...

Indonesia: New scheme to save AJB Bumiputera expected in 2018 Asia Insurance Review 27th Nov 2017
The Financial Services Authority (OJK) will be reviewing a new scheme to save the beleaguered mutual insurer, AJB Bumiputera 1912 (AJBB), after more than a year of attempting to restructure the insurer's operations. Mr Riswinandi, Executive Director of the Non-Banking Financial Industry unit at OJK, told the local media that the regulator targets the new AJBB rescue scheme to start in 2018. He did not elaborate on the details of the proposed scheme nor give a timeline for when the review would be completed.

Food & Agriculture

Opportunities for Indonesia's SVLK Certified Wood & Timber Exporters Indonesia Investments 4th Dec 2017
The EU's FLEGT action plan, launched in 2003, was designed in an effort to combat illegal logging and enhance forest management across the globe. FLEGT license guarantees that the product was harvested, processed and exported in accordance to national laws.

Government prepares smallholder rubber plantation rejuvenation scheme Antara News 1st Dec 2017
The government has prepared the scheme for rejuvenation of smallholder rubber plantation and worked in cooperation with business associations to improve farmers` welfare and increase its productivity.

Indonesia wants WTO to regulate subsidies for large fishing firms The Jakarta Post 29th Nov 2017
Indonesia has proposed that the World Trade Organization (WTO) regulate a subsidy from states to large corporations that run fishing businesses.

Indonesian Government plans for 1 million fishermen and farmers to go online by 2019 OpenGov 27th Nov 2017
As part of the National Strategy of Inclusion Finance, the Ministry of Communications and Informatics is encouraging all sectors of the economy, to grow and develop through the adoption of ICT.

Indonesia replants oil palm trees on 9,109-ha land in N Sumatra The Jakarta Post 27th Nov 2017
The government is planting oil palm trees to replace old ones on 9,109.29 hectares of plantations owned by local growers in North Sumatra to help increase the productivity of the plantations.

Ministry of Agriculture motivate STPP students to engage in agriculture Netralnews 4th Dec 2017
One of the problems of agricultural development and food security in the future is the decreasing interest of young people in the field of agriculture. This condition certainly can not be left alone, and should be addressed to seek a solution. One solution is to invite young people, especially students,  to engage in agricultural business. "You are the next generation and successors, while we here will retire in 5-10 years,” said Agung Hendriadi, Head of Food Security Agency (BKP) at the Ministry of Agriculture during a public lecture in front of hundreds of students from Institution of Agricultural Counseling (STPP) at the auditorium of the Ministry of Agriculture.

Agriculture Ministry to evaluate impact of floods Antara News 30th Nov 2017
The Agriculture Ministry has evaluated the impact of floods on agricultural production in some regions and will offer compensation to farmers whose fields are covered under agriculture insurance. "We have sought a report," Agriculture Minister Andi Amran Sulaiman stated here, Thursday. Amran made assurance that the ministry will assist the affected farmers and provide paddy seeds, while those covered under the agriculture insurance program could claim compensation. According to the minister, currently, some 700 thousand hectares of land area has been covered under the insurance program.

Russian food & beverage exporters eye Indonesian market The Jakarta Post 23rd Nov 2017
The Russian Export Center has participated in SIAL Interfood 2017 at Jakarta International Expo Kemayoran, held until Saturday, to introduce its food and beverages to Indonesians. Eight Russian companies participated in the event, namely producers of wheat snacks Barkanoff, confectionery Uniconf, buckwheat snacks Makfa, wheat flour Petrovskie and frozen pancakes Lina. The Russian trade representative in Indonesia Sergei Rossomakhov said food and agriculture products were among Russia's priority export commodities. The others were related to energy, mining, transportation, infrastructure, information and technology. “As Russia's economy is recovering [from crisis in 2014], we have been trying to reduce our dependence on oil exports,” he told The Jakarta Post at the expo on Wednesday. Other agricultural products the country aims to export to Indonesia include various meats, chick peas, barley and millet.

ICT

Indonesia's top telecom acquires Malaysian satellite company Nikkei Asian Review 27th Nov 2017
Telekomunikasi Indonesia, the country's largest telecommunications company, announced on Friday it has agreed to acquire a maximum stake of 70% in Malaysian satellite company TS Global Network for 108.5 million ringgit ($26 million).

Indonesia makes an aggressive leap into the world of e-commerce Financial Review 23rd Nov 2017
Indonesia is the jewel in the crown of a new great game that is unfolding in south-east Asia as global technology companies battle to control an internet economy projected to be worth $US200 billion ($265 billion) by 2025. Indonesia's rapidly evolving technology sector has been the focus of accelerating investment by Chinese internet giants over the last 18 months with an unfolding suite of acquisitions and investments by Alibaba, Tencent, JD.com and other Chinese peers quickly altering the landscape with significant long-term implications.As recently as 2011, the nascent Indonesian industry was in the throes of a debate about whether e-commerce would work in the country at all. An odd alliance of local businessmen and foreign financiers promulgated the view that Indonesia was different – its consumers would not trust online transactions, fraud would plague the industry, and poor infrastructure and logistics would make browser speeds and package delivery so intolerable such as to dissuade even the most forward-looking of customers. Government regulation burdened the industry with sticky regulation.History smiles favourably on those who disagreed. A 2016 Google-Temasek report estimated that the island nation would constitute 46 per cent of the entire region's e-commerce by value by 2025, growing from $US1.7 billion to $US46 billion in just 10 years.Chinese companies are at the forefront of this development, and their actions have garnered the support of the Indonesian government, which was previously reluctant to embrace foreign companies and investment.

Infrastructure

ADB to assist Indonesia with transport PPPs Public Finance International 27th Nov 2017
The increased investment from the private sector would help improve the competitiveness of the state transport infrastructure in the country, the ADB said.

Jokowi inaugurates Silangit International Airport The Jakarta Post 24th Nov 2017
President Joko "Jokowi" Widodo has inaugurated Silangit International Airport, the main gate to the government-promoted tourist destination of Lake Toba and its surroundings in Tapanuli Utara regency, North Sumatra.

Manufacturing

Indonesia's manufacturing PMI rises to 50.4 in November Nikkei Asian Review 4th Dec 2017
The Nikkei Indonesia Manufacturing Purchasing Managers' Index, or PMI, rose to 50.4 in November from 50.1 in October. A reading above 50 indicates economic expansion, while a reading below 50 points toward contraction.

Manufacturing PMI Indonesia Improves Slightly in November Indonesia Investments 4th Dec 2017
But despite rising manufacturing activity, Indonesian firms continued to reduce staffing levels amid reports of ongoing spare capacity. Moreover, these firms had to face sharper cost pressures as input prices rose steepest since June 2017. Part of these higher costs were passed on to customers by raising the average selling prices. They could not pass on all costs due to the price-sensitive Indonesian customers.

Indonesia to offer tax incentives to manufacturing industry: Minister The Jakarta Post 28th Nov 2017
The Industry Ministry will provide the manufacturing industry — a main contributor to gross domestic product (GDP) — with three tax incentives to try to boost the country’s economy, which has seen slow growth in recent years.