Indonesian Finance Ministry Extends Tax Incentive Pioneering Industries
Today, the Indonesian government announced it extended a tax incentive for “pioneering” industries. This term refers to those industries that are considered key industries that cause a multiplier effect in the Indonesian economy (hence boosting economic) and provide employment opportunities for the local population. Examples of such industries are oil refinery, infrastructure, maritime transport, telecommunications, downstream metal production and agriculture processing. The extended incentive is effective per 16 August 2015.
Based on a statement released by Indonesia’s Finance Ministry, the government now offers a tax reduction in the range of 10 to 100 percent for a period up to 15 years (and extendable for an additional five years provided that the company obtains permission from the Indonesian Finance Minister) to those companies that invest at least IDR 1 trillion (approx. USD $71 million) in aforementioned “pioneering” industries. In the previous regulation, this tax break was limited to 10 years.
Through this tax incentive the Indonesian government aims to attract more foreign (and domestic) direct investment into Indonesia, needed to boost the country’s economic growth which has slowed to a six-year low of 4.67 percent (y/y) in the second quarter of 2015.
Although in rupiah terms foreign direct investment (FDI) in Indonesia grew 18.2 percent (y/y) to IDR 92.2 trillion in the second quarter of 2015, in US dollar terms it fell from USD $7.43 billion to USD $7.38 billion in the second quarter of 2015 (the Indonesia Investment Coordinating Board, or BKPM, uses an IDR 12,500 per US dollar exchange rate in 2015 and an IDR 10,500 per US dollar exchange rate in 2014). The BKPM targets realized investment worth IDR 519.5 trillion in 2015.
Foreign and Domestic Investment in Indonesia (in IDR trillion):
| 2014 |
2015 | |||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| Domestic Direct Investment | 34.6 | 38.2 | 41.6 | 41.7 | 42.5 | 42.9 | ||
| Foreign Direct Investment | 72.0 | 78.0 | 78.3 | 78.7 | 82.1 | 92.2 | ||
| Total Investment |
106.6 |
116.2 | 119.9 | 120.4 | 124.6 | 135.1 | ||
| 2011 |
2012 | 2013 | ||||||||||
| Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | |
| Domestic Direct Investment | 14.1 | 18.9 | 19.0 | 24.0 | 19.7 | 20.8 | 25.2 | 27.5 | 27.5 | 33.1 | 33.5 | 34.1 |
| Foreign Direct Investment | 39.5 | 43.1 | 46.5 | 46.2 | 51.5 | 56.1 | 56.6 | 65.5 | 65.5 | 66.7 | 67.0 | 71.2 |
| Total Investment |
53.6 | 62.0 | 65.5 | 70.2 | 71.2 | 76.9 | 81.8 | 83.3 | 93.0 | 99.8 | 100.5 | 105.3 |
Source: Indonesia Investment Coordinating Board (BKPM)