|27 August 2015 Highlight Widodo’s new Indonesia stimulus starts with old tax holidays JAKARTA (Aug 27): Two weeks after a cabinet reshuffle, Indonesian President Joko Widodo’s revamped economic team promised a "big" stimulus plan as global market turmoil increases pressure on policy makers. The team’s first act: an expansion of past tax holidays.
Chemicals, machinery, agricultural, maritime transport and upstream oil and gas companies investing more than 1 trillion rupiah ($100 million) will get lower taxes for between 5 years and 15 years, Finance Minister Bambang Brodjonegoro told reporters in Jakarta on Thursday. Tax reductions will be between 10% and 100%, he said.
The move widens an existing policy of tax holidays for industrial investors previously announced by the current and previous governments. Widodo, known as Jokowi, brought in new trade and economics ministers in a reshuffle on Aug. 12 aimed at improving coordination and policy making to shore up slowing growth in Southeast Asia’s largest economy.
“This is helpful but just one of many things that any FDI investors will look at, at the end of the day,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “It sounds like a re-packaging of what has been talked about for a while.”
The Jakarta Composite Index extended gains to 4.6 %, the most in nearly two years, after the tax plans were announced. The rupiah climbed 1% at the close in Jakarta, according to prices from local banks. The currency is the second-worst performer against the dollar in Asia this year and the stock market has fallen more than 15%.
On Aug. 20, Jokowi ordered the cabinet to conduct a major deregulation to improve the investment climate. The government plans a “big” economic stimulus package in coming days, aimed at increasing investment flows and strengthening the rupiah, Darmin Nasution, the coordinating minister for economic affairs, said on Thursday.
Telecommunications companies will be able to apply for a tax holiday with only 500 billion rupiah investment, Brodjonegoro said. Indonesia has previously offered tax holidays to build oil refineries and to other investors.
The challenge is convincing investors who are put off from starting businesses in Indonesia by the poor state of its roads and ports, rising labor costs, corruption and a lack of legal certainty, long-term problems that may take years to fix.
Mixed messages and protectionist policies aren’t helping. Also on Thursday, the Agriculture Ministry said it was proposing a 10% tax on soybean imports. It plans to order traders to buy from local farmers, Director General of Food Crops Hasil Sembiring said.
Foxconn Technology Co., which has been in talks for years to potentially build a phone manufacturing plant in Indonesia, wanted a “large amount” of free land on Java island in requests for a deal that the government couldn’t grant, Industry Minister Saleh Husin said.
The government is looking to attract manufacturers to meet domestic demand in the world’s fourth-largest population and replace imports to narrow a persistent current-account deficit. Foreign direct investment stagnated last quarter.