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Indonesia To Make Law Efficient For Investment

Indonesia’s parliament plans to overhaul several dozen tax and labour market laws as south-east Asia’s largest economy strives to boost foreign investment and grow its manufacturing base.

A so-called Omnibus bill — whose draft Joko Widodo, Indonesia’s president, said would be completed in the first 100 days of his second term — aims to amend 79 laws and 1,244 articles in an effort to reduce overlap and inconsistency in the country’s legal system.

Mr Widodo, has made the new law a priority as he seeks to increase the ease of doing business and foreign investment to help the economy grow beyond an average rate of 5 per cent.

The bill, due to be discussed in parliament this week, has sparked protests in the capital Jakarta, amid fears that it could lead to workers’ rights being eroded.

Raising investment inflows could help galvanise the country’s manufacturing sector, which, as a share of gross domestic product, shrank 10 percentage points between 2002 and 2018 to about 20 per cent, according to World Bank data.

While offering the largest consumer market in south-east Asia, Indonesia has not benefited from the rerouting of investment from China amid Sino-US trade tensions as much as countries including Vietnam and Malaysia. The diverted investment has mostly focused on export-oriented manufacturing. Foreign investors have historically complained about red tape and protectionism — particularly in the natural resources sector — in Indonesia.

The proposed tax changes include gradually dropping corporate income tax from 25 per cent to 20 per cent by 2023; instituting a digital tax; and scrapping tax on foreign dividend income if reinvested onshore.

The bill aims to create jobs by reforming laws linked to investment, intellectual property rights, land acquisition and Indonesia’s labour market, which offers some of the most generous severance payments worldwide.

(source: Financial Times)