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NEWS UPDATES Asean Affairs   27  December 2010

Tax incentives for Indo manufacturing in 2011

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Indonesia's manufacturing sector is set to receive a major shot in the arm in 2011.

Industry Minister MS Hidayat said last week that tax breaks could generate as much as Rp 125 trillion ($13.9 billion) in manufacturing output, the amount needed for the sector to reach its growth target of 6.1 percent in 2011 from 5.2 percent this year.

Hidayat said his ministry would prioritize tax breaks, which offer tax holidays for a number of years, for resource-based, heavy and pioneering industries, as well as industries located in low-infrastructure areas.

"The government has agreed to give tax breaks to these industries. We're expecting to finalize it in January," he said

Hidayat said that, in principle, the tax breaks and other incentives were meant to lure investors to local industries that process raw materials domestically.

"Fiscal incentives, credit facilities, revitalizing aging machines and improving infrastructure are among the things we're going to do next year," he said.

In addition to the revitalization plans, small- and medium-sized companies will receive access to credit facilities, government-led promotions and workshops.

"For automakers, the ministry will promote more local content and cleaner and more economical vehicles," Hidayat said. "We're also planning to increase the export duty for commodities such as cocoa and palm oil. The idea is to stimulate commodity-related industries, such as oleochemicals."

The ministry estimated it would need Rp 125 trillion next year to meet its targets.

Hidayat said the manufacturing sector would absorb 14.9 million workers, up from this year's target of 14.4 million, and exports would reach $92.3 billion if the rate of growth continues.

Manufacturing exports in the first nine months of this year increased by 34.1 percent, reaching $68.8 billion and accounting for 62 percent of total export value.

Several projects have been finalized and are ready to begin construction next year, the minister said. These include a $6 billion factory being developed by state steel maker Krakatau Steel and South Korea's Posco, the Lafarge cement factory in Aceh and three projects in East Java: the Nestle factory in Pasuruan, Panasonic's new manufacturing plant and Holcim's cement factory in Tuban.

In the first nine months of this year, the manufacturing sector grew by 4.69 percent, higher than the ministry's target of 4.65 percent. Domestic investment in the sector for the first nine months reached Rp 17.5 trillion, while foreign investment was $2.5 billion.

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