Tax holiday for high-value Indonesian investors

To boost foreign direct investment into Southeast Asia’s largest economy, Indonesia on Monday said it planned to grant tax holidays for major investors in select sectors.

Finance Minister Agus Martowardojo said the exemption would be granted to companies investing at least Rp 1 trillion (US$117 million) in the base metals, oil refining, petrochemicals, renewable energy, machinery or telecoms equipment sectors.

“We have prepared the criteria for a tax holiday,” he said, adding that a regulation to that effect would be issued later this month.

The tax holiday will exempt investors from paying taxes for between 5 and 10 years from the start of commercial operation, he said. Existing investors that have operated commercially less than a year could also apply, he added.

“These companies must have at least Rp 1 trillion in investment and be considered pioneers in their industries,” Agus said.

He said companies that already received a tax allowance — a deduction in taxable net revenue by as much as 30 percent of the amount invested over the course of six years — was not eligible for the exemption and vice versa.

The coordinating minister for the economy, Hatta Rajasa, said the government was also planning to revise an existing tax allowance regulation for smaller investors this month.

The industry minister, M.S. Hidayat, hailed the announcement, saying industry players had been waiting for such a measure.

“This will boost our downstream industry, especially the agro-industry [cocoa, palm oil, rubber, etc.],” he said.

As an example of the possible impact of the measure, Hidayat said the planned $2 billion joint venture of China’s Wuhan Iron & Steel Corp. with Indonesian steel maker Gunung Garuda could materialize soon.

“With this incentive, industry can grow by up to 7 percent this year. In the first half, manufacturing grew by 6.61 percent,” the minister added.