Indonesia to offer tax breaks to firms

“As long as [the business] is large-scale, pioneering, innovative and creates a lot of jobs, we will give it,” said Gita Wirjawan, chairman of the Investment Coordinating Board (BKPM), which submits incentive recommendations to the Finance Ministry.

Gita, speaking on Monday on the sidelines of the World Economic Forum, said the ministry looked likely to approve the tax holiday — which exempt firms from duties during a specified period — and issue a decree.

He said the incentive would be awarded to various sectors, both domestic and foreign.

The BKPM had earlier proposed that some labor-intensive sectors — such as refinery, processing and steel — be given a incentive packages that include tax holidays, apart from the waiving of some import duties.

The government has not released exact details of the proposal, but recent media reports suggest investors can enjoy tax breaks for up to eight years.

The plan has met some resistance because Indonesia’s taxation law does not recognize delays or breaks in corporate taxes. Other analysts said they were also concerned that the plan would shrink budget revenue.

Corporate income tax is set at 25 percent in Indonesia, compared with 30 percent in neighboring Thailand and 17 percent in Singapore.

But on the back of prospective investment, Gita assured investors they would enjoy incentives “as long as [they] were in line with the government’s vision, such as to provide more job opportunities and to contribute significantly to the national priority."

State delays in approving tax holidays has put many infrastructure projects in jeopardy, as investors complain of the lack of incentives to park capital in the country.

Large-scale projects — including a $1 billion expansion of the Pertamina refinery in West Java that needs help from a Kuwaiti investor — was delayed pending a clear signal for tax incentives, which included scrapping import duties for chemicals.

South Korea’s Pohan Iron & Steel (Posco), which signed a $6 billion deal with state-controlled Krakatau Steel last year, is also among investors waiting for stimulus packages.

Despite the delay, Gita said investment prospects in the world’s fourth most populous country remained bullish, with global companies from Asia, the United States and Europe promising future investments.

In the infrastructure sector, Gita said, India’s GMR and GVK conglomerates were considering investing up to $5 billion in airports, power plants and railroads in Indonesia.

Essar Group, also from India, is also eyeing power plants, a steel factory and railroads worth the same amount, Gita said.

American firms General Electric and Procter & Gamble, South Korea’s Hanwa and Lotte Group, as well as Nissan, Daihatsu and Tata Motor India were also looking for deals, he added.