Enhancing National Policies
This section describes the most recent investment-specific and investment-related measures per ASEAN member state.
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Indonesia
Year Category Sub Category Description 2013 Invesment Facilitation Initiative Online Tracking System In its attempt to improve investment regime and business environment, since October 24th 2012, Indonesia through the Indonesia Investment Coordinating Board (BKPM) has officially launched the Online tracking System. This is one of the strategic approaches to operationalize the agenda of boosting the investment environment. The tracking system itself is accessible by the investors from all over the world through BKPM web portal, http://www.bkpm.go.id.
Indonesian economic growth has increased in the last few years. This statement is supported by the investors’ confidence to invest in Indonesia. In order to create more added values of domestic goods and services and to accelerate the quality of national economic growth as well, it certainly requires more investments. To achieve this goal, strong supports are needed from cross sectors regulations, sufficient infrastructures, conducive labors climate, and excellent services from the integrated investment system both from regional and central government. One of the efforts, according to Act No.14/2008 on Public Information, is the transparency process of investment licensing services.
Continuosly, BKPM improves its investment services through supporting the transparency of investment licensing process to public by using an Online Tracking System. Through the system, investors are able to monitor their investment licensing process from the registration to the finished process. This system is a mile stone in gaining investors’ trust on certainty of the practical yet transparent investment licensing process in BKPM One Stop Services.
The benefits of the Online Tracking System itself is : (1) Provides a transparent investment application process, (2) Provides certainty to investor with regards to the application process of issuing investment licences in One Stop Services BKPM, and (3) Helps to monitor the position and status of application process.
As a part of National Single Window for Investment (NSWi), or better known in Indonesian term as SPIPISE, the Online Tracking System is important because it is useful for investors in order to determine the position and status of their application. All data submitted by investors will be recorded in the SPIPISE database to able investors tracking the position and status of their application. Types of licenses that could be accessed through the online tracking system are : Registration, Principle License, Approval for Machinery, Goods and Material Import Facilities, and Business License.
The Online Tracking System is accessible by investors through any devices such as Personal Computer, Notebook, Tablet, even Smartphone. This service could be accessed by entering the registration number into the field displayed in BKPM main page web portal.
Currently, the first step of the implementation of the tracking system can be used by submitting the physical investment license request at BKPM One Stop Service. In the near future, this system will be developed to able the investors to track their license processing in the Provincial or Regional One Stop Service Agencies.2014 REGULATORY REFORMS EASE OF DOING BUSINESS To attract more investment inflows to Indonesia as well as to boost investment realization in Indonesia, the government has started to improve various areas in the ease of doing business.
In the area of starting a business, several improvements have been conducted. First, the establishment of business entity can now be done by the online system, thus the process has been accelerated from 16 days to only one day. Second, simplification on the issuance of Permanent Business Trading License (SIUP) and Company Registration Certificate (TDP) accelerates the process to only three days from previously 15 days. Third, the process of registering worker at Ministry of Manpower has been simplified from 14 days to one day. Fourth, at present, it is take only one day to register workers’ social security program through online system.
Moreover, the government has also simplified the procedures for getting the electricity, by establishing the online registration system, removing some procedures, deducting cost, and accelerating the process. This results in the lower cost and faster connection process, which previously takes 101 days while now only 15-40 days.
Furthermore, in the area of paying taxes and insurance premium, the online system has enabled corporation to report its taxes through e-filling and pay social security and health insurance contributions through e-payment.
In the area of enforcing contract, the government has accelerated the settlement of commercial disputes in the court, through reducing the procedures as well as limiting the process in the first instance court to maximum five months and the appeal court maximum three months.
In addition, the government has also accelerated the judicial procedure in resolving insolvency. Specifically, the judicial procedure in the first instance court should not exceed 60 days. Therefore, it is expected that the insolvency will be resolved in less than two years, faster than previously four and a-half years.
In regards to the area of property registration, there is time reduction in the land certificate examination and the transfer of land rights. The land certificate examination can now be done in one day service. While, the transfer of land rights can be completed in maximum five days.
Moreover, in the area of dealing with construction permits, the procedures have been simplified. Registration for building construction permit can be done through the online system. The process of getting water connection has been accelerated to three days from eight days. The process of getting telephone connection can now be completed in two days. Overall, it takes only 22 days to obtain building construction permit, register warehouse, as well as install water and phone connections, from previously 158 days.
Lastly, the government has also made some improvements in the area of getting credits. The regulation on the establishment of Credit Information Management Institution has been enacted, which will increase the depth of credit information index. While, the implementation of Collateral Registry Electronic Administration System will improve the strength of legal rights index.SPECIAL ECONOMIC ZONE In order to accelerate the economic development in certain areas which are geo-economically and geo-strategically potential, the government of Indonesia establish the special economic zone, which provides special facilities and incentives for investors as well as has focused economic activities, such as logistics, export-processing, manufacturing, energy and tourism.
In 2014, there are five Special Economic Zones (SEZ) accross the country that have been established, which are Palu SEZ in Central Sulawesi, Bitung SEZ in North Sulawesi, Morotai SEZ in North Maluku, Tanjung Api-api SEZ in South Sumatera, and Mandalika SEZ in West Nusa Tenggara.
Previously, in 2012, the government established Sei Mangke SEZ in North Sumatera. Moreover, in order to accelerate the licensing process in this SEZ, the chairman of BKPM has delegated his autority to issue the principal and business licenses to the head of administrator of Sei Mangke SEZ since 2014.2015 REGULATORY REFORMS Presidential Regulation Number 39 Year 2014 After conducting a regular review, government of Indonesia enacts a new
Presidential Regulation Number 39 Year 2014 concerning Lists of Business Fields that
are Closed for Investment and Business Fields that are Conditionally Open for
Investment, to replace Presidential Regulation Number 36 Year 2010. This new
regulation is intended to create more conducive investment climate by providing clearer,
more transparent and certain investment policies. The regulation also takes into account
the country’s commitments in international cooperation, such as ASEAN.
The regulation stipulates the list of business fields that are closed for investment
as well as business fields that are open for investment with certain conditions, such as
reserved for micro, small and medium enterprises as well as cooperatives; partnership;
certain foreign equity participation; certain location; special permit; and ASEAN-based
investors. While, the indirect investment or portfolio investment through domestic capital
market is not required to comply with this regulation. Moreover, existing investments are
also not affected by this new regulation, except if the existing investors would like to
benefit from the more favorable treatment offered by this regulation.
In general, the new regulation opens more access for investments. Currently,
there are 15 business fields closed for investments, or 25% less than previous
regulation. While, for business fields conditionally open for investments, the new
regulation only stipulates 216 business fields, or 21% less than previous one. Most of
sectors are more open for investments, such as forestry, fishery, energy and mineral
resources, manufacturing, tourism and creative economy, transportation,
telecommunication and informatics, financial services, banking, as well as medical
services.
In order to enhance clarity, transparency and certainty of investment policies
across various sectors, the new regulation also takes into account the most recent
III. REGULATORY REFORMS
sector-specific regulations. In addition, some business fields’ stipulation are re-written in
more detail and clearer, to enhance the accuracy and effectiveness of this regulation.2016 REGULATORY REFORMS Presidential Regulation Number 44 Year 2016 Following a series of review, on 18 May 2016 government of Indonesia enacted
a new Presidential Regulation Number 44 Year 2016 concerning the Lists of Closed
Business Fields and Opened Business Fields with Conditions for Investment. This new
regulation is intended to provide more conducive investment climate by providing
clearer, more transparent and certain investment policies. The regulation also takes into
account the country’s commitments in international agreements such as in the ASEAN.
The regulation stipulates three lists of business fields; i) lists of business fields
that are closed for investment; ii) lists of business fields that are opened for investment
which are reserved or for partnership with micro, small and medium enterprises; and iii)
lists of business fields that are opened with conditions, such as certain foreign equity
participation, certain location, special permit and recommendations, and ASEAN-based
investors. Furthermore, existing investments are also not affected by this new regulation
unless if the existing investors would like to benefit from the more favorable treatment
offered by this regulation.
In general this new regulation opens more business fields for foreign investment.
The number of business fields listed in this regulation has been simplified to 515 from
664 in the previous regulation. Further, there is also regrouping on percentage for
foreign equity participation in the regulation, such as 49%, 67%, or 95%. Most of sectors
are more open for investments such as e-Commerce, manufacture, tourism and
creative economy, energy and mineral resources, public works, trade, transportation,
telecommunication and informatics, employment, as well as medical services.2017 REGULATORY REFORMS National Policy Packages Since 2015, Indonesia has released several Economic Policy Packages, as part of its structural reform in order to stimulate and boost national economic growth significantly. By mid of 2017,Indonesia has officially published 15 Economic Policy Packages, which are based on sectoral and thematic issue. These 15 Packages are as follows: The policy within the packages are mainly focus on issues of improvement of industry competitiveness, widening of investment, efficiency of logistics sector, improvement of tourism sector, expansion of export, and improvement of society’s purchasing power.
Further, government plan to publish more economic packages regarding logistics, education and vocational training, agrarian reform, energy, food, creative economy, as well as industries and services.Impact – Improvement of World Bank’s Ease of Doing Business Following the launch of Economic Policy Package series, government has made adjustments to domestic regulations on investment, specifically regulations which are considered giving difficulties to investors, regulations which are not aligned with main or higher regulations, and regulations which are duplicated with other regulations. Some regulations in Presidential and Ministerial/Institutional level were being observed to be deregulated. As of February 2017, government has deregulated 203 regulations. In addition, government has annulled 3,000 and more regulations in the regional level across the country, by the end of 2016.
At the moment, the government is still committed to continue the structural reform within the country, in many aspects such as taxation, trade, infrastructure, and investment,to boost its economic growth.
As an immediate result, government’s actions to conduct those structural reforms have been acknowledged by the significant rise of Indonesia’s rank on the Ease of Doing Business. In 2016, Indonesia was tiered on 106th in the World Bank’s list. While, in 2017, Indonesia has mounted the ranking into 91stposition. Further, Indonesia will continue to advance its economic and political stability to be able to gain more investors’ confidence in particular and to improve its economic growth in general.2018 REGULATORY REFORMS National Policy Packages To improve national industry competitiveness, export and investment to generate significant economic growth, Indonesia has released several Economic Policy Packages, as part of its structural reform in order to stimulate and boost national economic growth significantly. By the end of 2017, Indonesia has officially published 15 Economic Policy Packages, which are based on sectoral and thematic issue. These 15 Packages are as follows: The policy within the packages are mainly focus on issues of improvement of industry competitiveness, widening of investment, efficiency of logistics sector, improvement of tourism sector, expansion of export, and improvement of society’s purchasing power.
Further, government plan to publish more economic packages regarding logistics, education and vocational training, agrarian reform, energy, food, creative economy, as well as industries and services.Impact – Improvement of World Bank’s Ease of Doing Business Government has made adjustments to domestic regulations on investment following the launch of Economic Policy Package series, specifically regulations which are considered giving difficulties to investors, regulations which are not aligned with main or higher regulations, and regulations which are duplicated with other regulations. Some regulations in Presidential and Ministerial/Institutional level were being observed to be deregulated. As of January 2018, government has deregulated 219 out of 223 regulations. At the moment, the government is still committed to continue the structural reform within the country, in many aspects such as taxation, trade, infrastructure, and investment, to boost its economic growth.
As an immediate result, government’s actions to conduct those structural reforms have been acknowledged by the significant rise of Indonesia’s rank on the Ease of Doing Business. In 2017, Indonesia was tiered on 91st in the World Bank’s list. While, in 2018, Indonesia has mounted the ranking into 72nd position. Further, Indonesia will continue to advance its economic and political stability to be able to gain more investors’ confidence in particular and to improve its economic growth in general.2019 REGULATORY REFORMS National Policy Packages To improve national industry competitiveness, export and investment to generate
significant economic growth, Indonesia has released several Economic Policy Packages, as
part of its structural reform in order to stimulate and boost national economic growth
significantly. By the end of 2018, Indonesia has officially published 16 Economic Policy
Packages, which are based on sectoral and thematic issue. These 16 Packages are as follows:The policy within the packages are mainly focus on issues of improvement of industry
competitiveness, widening of investment, efficiency of logistics sector, improvement of
tourism sector, expansion of export, and improvement of society’s purchasing power.
Further, government plan to publish more economic packages regarding logistics,
education and vocational training, agrarian reform, energy, food, creative economy, as well
as industries and services.Impact – Improvement of World Bank’s Ease of Doing Business Government has made adjustments to domestic regulations on investment following
the launch of Economic Policy Package series, specifically regulations which are considered
giving difficulties to investors, regulations which are not aligned with main or higher
regulations, and regulations which are duplicated with other regulations. Some regulations in Presidential and Ministerial/Institutional level were being observed to be deregulated. As
of January 2019, government has deregulated 222 out of 225 regulations. At the moment,
the government is still committed to continue the structural reform within the country, in
many aspects such as taxation, trade, infrastructure, and investment, to boost its economic
growth.
In 2018, Indonesia was tiered on 72nd in the World Bank’s list. While, in 2019,
Indonesia has slightly dropped the ranking into 73rd position. Further, Indonesia will
continue to advance its economic and political stability to be able to gain more investors’
confidence in particular and to improve its economic growth in general.2020 REGULATORY REFORMS National Policy Packages To improve national industry competitiveness, export and investment to generate significant economic growth, Indonesia has released several Economic Policy Packages, as part of its structural reform in order to stimulate and boost national economic growth significantly. By the end of 2018, Indonesia has officially published 16 Economic Policy Packages, which are based on sectoral and thematic issue. These 16 Packages are as follows: The policy within the packages are mainly focus on issues of improvement of industry competitiveness, widening of investment, efficiency of logistics sector, improvement of tourism sector, expansion of export, and improvement of society’s purchasing power.
Further, government plan to publish more economic packages regarding logistics, education and vocational training, agrarian reform, energy, food, creative economy, as well as industries and services.Impact – Improvement of World Bank’s Ease of Doing Business Government has made adjustments to domestic regulations on investment following the launch of Economic Policy Package series, specifically regulations which are considered giving difficulties to investors, regulations which are not aligned with main or higher regulations, and regulations which are duplicated with other regulations. Some regulations in Presidential and Ministerial/Institutional level were being observed to be deregulated. At the moment, the government is still committed to continue the structural reform within the country, in many aspects such as taxation, trade, infrastructure, and investment, to boost its economic growth.
In 2019, Indonesia was tiered on 73rd in the World Bank’s list. Further, Indonesia will continue to advance its economic and political stability to be able to gain more investors’ confidence in particular and to improve its economic growth in general.Concerted Efforts to Mitigate Covid-19 Risk General measures Fiscal and Non-Fiscal Stimuli Protocols in every Economic-Social Sector In an effort to deal with Covid-19 pandemic, Indonesia issued several policies including: (i) Minister of Trade Regulation No.57/2020 which revoked policies related to the prohibition of export of antiseptic products, raw materials for masks, masks and personal protective equipment (PPE); (ii) Minister of Trade Regulation No.28/2020 which revokes a ban canceling all import requirements for protective equipment and medical equipment; (iii) Minister of Trade Regulation 37/2020 which revokes the acceleration of import of used goods, especially ventilators; (iv) Minister of Trade Regulation No.27/2020 which revokes the release of certification requirements for onions and garlic; (v) Minister of Trade Regulation No.10/2020 concerning prohibition of importation of live animals from China; (vi) Head of Investment Coordinating Board (BKPM) Decree No.86/2020 which provides licensing facilities for businesses related to the handling of pandemic Covid-19 (the medical and pharmaceutical industry); and (vii) Head of National Agency of Drug and Food Control (BPOM) Decree No.HK.0202.1.2.03.20.134 of 2020 which sets drug guidelines in the management of Covid-19.
In order to minimize the impact of Covid-19 for the economy, the Indonesian government made several policies, including providing export tax relief; direct assistance to farmers and micro, small and medium businesses; and also launching stimulus. Indonesia also recognizes the importance of relaxing trade measures for the economy and efforts to facilitate the flow of essential goods and cooperation in the field of research to improve economic conditions.4.0 Industrial Revolution Sector Prioritization Matrix Making Indonesia 4.0 implementation roadmap 2021 REGULATORY REFORMS Job Creation Law and its Implementing Regulations On 2 November 2020, the Law Number 11 of 2020 on Job Creation was enacted and commonly known as the "Omnibus Law". It aims to attract investment, create new jobs, and stimulate the economy by, among other things, simplifying the licensing procedures, harmonizing various laws and regulations, and accelerating policy-making of central government to respond to any changes or challenges. The Omnibus Law consists of 186 articles and 15 chapter which has amended 79 of existing laws. One of the key points in the Omnibus Law is increasing the ease of doing business in Indonesia through, for instance, simplifying licensing procedures, simplifying land acquisition processes, encouraging the development of special economic zones, providing more incentives in free trade zones, and creating a land bank supervisory authority.
It also introduces a new concept of risk-based business licensing where business activities are divided into three categories, i.e. low risk, medium risk, and high risk. All categories require the business actors to obtain a business identity number (NIB). However, each category requires different type of licenses and procedures. Business field categorized as low risk business only requires NIB, which is automatically generated by the Online Single Submission (OSS) system after completing some business information in the system. While, medium risk business requires certificate of standard besides NIB. Medium risk business is further divided into: (i) medium low risk business which can obtain the certificate of standard automatically from the OSS system after submitting self-declaration form and (ii) medium high risk business that needs verification by relevant authority to obtain the certificate of standard. Moreover, high risk business requires, in addition to NIB, business permit which is obtained after verification from the relevant authority. With this reform, not every type of business requires business permit, since the business permit is only required if the type of business falls into high risk business.
To implement the Omnibus Law, the government of Indonesia has enacted 51 implementing regulations, which consists of 47 government regulations and 4 presidential regulations. In particular to the improvement of business climate, there are Government Regulation Number 5 of 2021 on Risk-Based Business Licensing and Presidential Regulation Number 10 of 2021 on Investment Business Fields as amended with Presidential Regulation Number 49 of 2021.
Government Regulation Number 5 of 2021 regulates that business actor must fulfill basic requirements for business licensing and/or obtain the risk-based business licensing. The basic requirements for business licensing may include the spatial conformity (kesesuaian kegiatan pemanfaatan ruang), environmental approval (persetujuan lingkungan), building approval (persetujuan bangunan gedung, previously building permit or IMB), and certificate of proper functioning (sertifikat laik fungsi or SLF). All procedures to fulfil the basic requirements for business licensing as well as to obtain the risk-based business licensing can conducted through a single portal called Online Single Submission (OSS) System. The regulation also stipulates a list of business fields of each sector that have been assessed for their risks as well as respective requirements.
In regards to certain conditions of investment business fields, Presidential Regulation Number 10 of 2021 (PR 10/2021) on Investment Business Fields as amended with Presidential Regulation Number 49 of 2021 (PR 49/2021) has replaced Presidential Regulation Number 44 of 2016 on the List of Business Fields that are Closed for Investment and Business Fields that are Open Under Certain Conditions for Investment (PR 44/2016). The old regulation provided a long list of business fields which were closed entirely for all investors, closed for foreign investors, and open with certain conditions for investment including limitation of foreign ownership. The new regulation, PR 10/2021 as amended with PR 49/2021, provides more positive message to investors, particularly that the business climate is now more attractive and competitive. The most notable differences between the new and old regulation is that the new regulation provides a list of priority business fields which can obtain investment incentives. The new regulation also provides a list of business fields that are allocated only for Micro, Small and Medium Enterprises (MSME) and Cooperatives and that are required to have partnership with MSME and Cooperatives. Moreover, regarding the certain conditions, the new regulation only stipulates 37 business fields that are open with certain conditions. This has improved significantly from the old regulation which stipulates around 350 business fields that were open with certain conditions. This is one of the reforms in investment climate that has been conducted by the government of Indonesia to attract foreign direct investment to Indonesia.
To effectively implement the Omnibus Law and its implementing regulations particularly in simplifying business licensing, the government of Indonesia recently launched the risk-based Online Single Submission (OSS) System on 9 August 2021. The risk-based OSS System replaces the previous OSS System that had been used since July 2018. The new risk-based OSS System has applied the new concept of risk-based approach licensing, in which the low risk business and the medium low risk business can automatically obtain their licenses (i.e. NIB and/or Certificate of Standard) after completing some data. These type of licenses are the legal document for preparation, operational and commercial activities. Moreover, the new risk-based OSS System offers simpler as well as more transparent and integrated business licensing since all relevant ministries, institutions and regional governments are connected within.Impact – Improvement of World Bank’s Ease of Doing Business Government has made adjustments to several domestic regulations on investment following the launch of the Omnibus Law, specifically regulations which are considered as restrictions to investors, regulations on simplification of business licensing process, regulations which are not aligned with main or higher regulations, regulations which are duplicated with other regulations, and regulations on opening more investment opportunities to foreign investors. Many regulations in Presidential and Ministerial/Institutional level have been deregulated with the launch of the Omnibus Law. At the moment, the government is still committed to continue the structural reform within the country, in many aspects such as taxation, trade, infrastructure, and investment to boost its economic growth.
In 2020, Indonesia was tiered on 73rd in the World Bank’s rank, which was the same rank as in 2019, but improved on its overall points. In particular, the points were improved in 7 areas, such as Dealing with Construction Permits, Getting Electricity, Protecting Minority Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts, and Resolving Insolvency. Further, following the enactment of the Omnibus Law and its implementing regulations, Indonesia will continue to enhance its economic and political stability to gain more investors’ confidence in particular and to recover its economic growth in general.Upgrading Status of Indonesia Investment Coordinating Board to Ministry of Investment To ensure successful implementation of the Omnibus Law in particular to simplify the business licensing process and facilitate the realization of investment plan by investors, the government of Indonesia upgraded the status of the Indonesia Investment Coordinating Board (BKPM) to become the Ministry of Investment on 28 April 2021 through Presidential Regulation Number 32 of 2021 on Amendment of Presidential Regulation Number 68 of 2019 on State Ministry Organization. Along this new status, the authority of institution has been expanded, not only to implement the investment policies, but also to lead the investment policies making. This structural reform is mainly designed to create greater certainty in doing business as well as to further enhance investment climate, taking into account that the investment policies will be carried out mainly through Ministry of Investment/BKPM. Concerted Efforts to Mitigate Covid-19 Risk General measures Fiscal and Non-Fiscal Stimuli Protocols in every Economic-Social Sector In an effort to deal with Covid-19 pandemic, Indonesia issued several policies including: (i) Minister of Trade Regulation Number 57 of 2020 which revoked policies related to the prohibition of export of antiseptic products, raw materials for masks, masks and personal protective equipment (PPE); (ii) Minister of Trade Regulation Number 28 of 2020 which revokes a ban canceling all import requirements for protective equipment and medical equipment; (iii) Minister of Trade Regulation Number 37 of 2020 which revokes the acceleration of import of used goods, especially ventilators; (iv) Minister of Trade Regulation Number 27 of 2020 which revokes the release of certification requirements for onions and garlic; (v) Minister of Trade Regulation Number 10 of 2020 concerning prohibition of importation of live animals from China; (vi) Head of Investment Coordinating Board (BKPM) Decree Number 86 Year 2020 which provides licensing facilities for businesses related to the handling of pandemic Covid-19 (the medical and pharmaceutical industry); and (vii) Head of National Agency of Drug and Food Control (BPOM) Decree Number HK.0202.1.2.03.20.134 of 2020 which sets drug guidelines in the management of Covid-19.
In order to minimize the impact of Covid-19 pandemic on the economy, the Indonesian government made several policies, including providing export tax relief; direct assistance to farmers and micro, small and medium businesses; and launching stimulus. Indonesia also recognizes the importance of relaxing trade measures for the economy and efforts to facilitate the flow of essential goods and cooperation in the field of research to improve economic conditions.2022 Indonesia’s Grand Strategy in Encouraging Sustainable Economic Growth Omnibus Law on the Job Creation Job Creation Law, commonly known as the Omnibus Law, has been used as a tool for long-term structural reform, by facilitating new business opening and increasing employment, while recovering the post-pandemic economy. Under the Omnibus Law, 79 laws were revised and simplified through a single law regulating various sectors. It consists of 186 articles and 15 chapter regulating 11 clusters, namely Improving the Investment Ecosystem and Business Activities; Employment; Ease, Protection, and Empowerment of Cooperatives and MSME; Ease of Business; Research and Innovation Support; Land Procurement; Economic Zone; Central Government Investment and Acceleration if National Strategic Project (PSN); Project Implementation of Government Administration; and Imposition of Sanctions. To implement Omnibus Law, the government enacted 54 implementing regulations, in form of Government Regulation or Presidential Regulation.
One significant reform through Omnibus Law and its implementing regulations (particularly Government Regulation Number 5 of 2021) is the reform in business licensing procedure, as it has introduced the risk-based approach in issuing business license to simplify licensing procedure. In addition, there has been a large expansion of business fields for investment, as regulated by Presidential Regulation Number 49 of 2021. It also stipulates priority business activities which can obtain tax incentives. The launching of risk-based online single system to implement Omnibus Law in August 2021 has also provided ease of doing business for investor in obtaining business license.Added value creation through commodity downstream Government has encouraged the development of downstream industries, particularly those processing mining commodities, such as nickel, bauxite, iron, copper, mangan, lead and zinc, and coal. The main purpose is to create higher added value products and prevent the negative effect from commodities’ price fluctuation. In particular, development of nickel-based industries is also Indonesia’s strategy to become a global battery and electric vehicle supplier. To support this strategy, the President has issued Presidential Decree Number 55 of 2019 and Government Regulation Number 74 of 2021 to accelerate the use of battery electric vehicles (BEV). Various incentives, both fiscal and non-fiscal incentives, are also provided to investors to support them realizing the project. The government policy in encouraging downstream industry is also intended to achieve sustainable and inclusive investment. High infrastructure investment The government of Indonesia has enacted several regulations as part of regulatory reform to ease infrastructure investment. These regulations were Government Regulation Number 42 of 2021 on Ease of Doing Business for National Strategic Project (PSN); Government Regulation Number 21 of 2021 on Spatial Planning; Government Regulation Number 19 of 2021 on Land Acquisition for Public Interest; Government Regulation Number 64 of 2021 on Land Bank Institution; and Government Regulation Number 43 of 2021 on Spatial Adjustment for Forest and Land Right/Permit. Moreover, government has provided 55 guarantee documents with total value of USD 23.52 billion for infrastructure investment project as of first quarter of 2022. Fiscal and non-fiscal incentives are also provided to attract infrastructure investment and promote public private partnership (PPP). Indonesia Investment Authority The establishment of Indonesia Investment Authority (INA) as Indonesia’s sovereign wealth fund in 2021 has become an alternative source of economic development financing. The government of Indonesia has injected initial capital of USD 5 billion into INA. The capital in the form of cash was distributed in February 2021 (amounting to USD 1 billion) and November 2021 (amounting to USD 1 billion), while the Government's transfer of shares of two state-owned enterprises happened in December 2021 (amounting to USD 3 billion). As part of its investment strategy and mandate, INA is currently discussing with more than 50 companies and several countries to become strategic partner to invest in Indonesia. INA aims to grow assets under management (AUM) to USD 20 billion in the near future. Main sectors of investment targeted by INA are toll road, airport, health services, industrial area, seaports, digital infrastructure, renewable energy, traditional energy, and plantation. Fiscal Reform Government has implemented fiscal reform to facilitate the structural reform in boosting long-term potential growth. One example of fiscal reform is tax reform, consisting of voluntary disclosure program, increased rate of value-added tax to 11%, integrating of ID number (NIK) and taxpayer number (NPWP), strengthening excise mechanism, income tax policy change, and introduction of carbon tax. It is expected that this tax reform will broaden the tax base, raise tax ratio, improve compliance, enhance fairness and support MSMEs. Another form of fiscal reform is enactment of Law No. 1 of 2022 on intergovernmental transfer, which is intended to reduce vertical and horizontal inequalities, harmonize of central and local government spending, improve quality of local government spending, and strengthen local taxing power. This will bring impact on efficient allocation national resources between central and local governments. Green Economy Based on the Paris Agreement and Indonesia’s Nationally Determined Contribution (NDC), the government of Indonesia has committed to reduce greenhouse gas emission by 29% in 2030 on unconditional mitigation scenario using self-financing, and by 41% in 2030 on conditional mitigation scenario using international financing support. The government has provided fiscal policy response to climate change issues, such as tax incentive for NRE and clean technology development, implementation of climate budget tagging, Indonesia’s green bond/sukuk framework, ecology-based fiscal transfer, SDG’s government securities framework, and the fiscal instruments related to Carbon Tax and Carbon Trading.
Moreover, based on National Energy Policy, government will increase the use of new renewable energy to 23% of national energy mix by 2025. In accomplishing the energy transition, Indonesia has several policies on compensation and incentives, i.e., clean energy acquisition, energy transition mechanism (coal-fired Power Plant early retirement), conversion of dirty energy sources, carbon trading, and carbon tax. The Carbon Tax has been regulated by Law Number 7 of 2021 concerning the Harmonization of Tax Regulations, however the enforcement is still postponed due to global uncertainty affecting high energy prices.
In addition, Indonesia has outlined the PPP priority sectors of 2020-2024 related to climate issue, which are urban transport and waste management. Government has also initiated the development of ESG framework to be implemented to projects involving private financing and government support. The Financial Services Authority has published Sustainable Finance Roadmap (Phase I and Phase II), consisting of development of green taxonomy, preparation of carbon exchange operation, and development of innovative and feasible project financing schemes.Investment Facilitation Initiative Implementation Team of the Investment Acceleration Task Force To facilitate investment plan and/or realization in Indonesia, the Government of Indonesia has formed the special task force to accelerate investment realization, based on the Presidential Decree Number 11 of 2021 on Investment Acceleration Task Force, and Minister of Investment Decree Number 121 of 2021 on the Implementation Team of the Investment Acceleration Task Force. In order to assist and facilitate as well to accelerate investment, the task force consists of five area, which are: settlement of investment issues; acceleration of priority sector generating foreign exchange reserve; law; acceleration of regional investment; and public relation.
The task force has been mandated tasks, among others, as follow:
1. Propose projects or sectors/commodities which can rapidly generate foreign exchange reserves, create employment, and develop local;
2. Settle the investment issues and constraints;
3. Accelerate and coordinate the realization of targeted investment projects;
4. Accelerate the cooperation between large-scale business and micro, small and medium enterprises.
Besides that, the task force has been given the authority to make decisions related to investment realization that must be immediately followed up by ministries/agencies/local governments and to coordinate with ministries/agencies/local governments related to investment realization, thus the investment facilitation can be conducted in a timely-manner and in accordance with the prevailing laws and regulations.Development of Sustainable Investment Projects Investment Opportunity Map (PPI) In order to promote the investment supporting the sustainable development goals, the Ministry of Investment/Indonesia Investment Coordinating Board has developed an Investment Opportunity Map (PPI) on Sustainable Investment Projects, which compiles projects that have substantial value in supporting SDGs. PPI contains comprehensive information on investment opportunity in each project that will assist investor to eliminate various uncertainty factors, such as the ‘clean and clear’ land status, availability of raw materials, and workforce.
Ministry of Investment/Indonesia Investment Coordinating Board conducts the preparation of potential projects from 34 provinces. The targeted projects refer to the list of major projects in the 2020-2024 Medium-Term National Development Planning (RPJMN), the Presidential Regulation on National Strategic Projects (PSN), and other national policies that ultimately produce Pre-Feasibility Study (Pre-FS) document. The Pre-FS includes an analysis of legal, administrative, and technical aspects, economic feasibility, social and environmental impacts, business model schemes, and government and stakeholder support.
In 2021, there have been 47 projects from 33 provinces introduced and promoted, which are expected to have a direct impact on the achievement of the SDGs, including the top five priorities (i.e. no poverty, good health and well-being, decent work and economic growth, reduced inequalities and partnership for the goals). The summary of those 47 projects is as follow:As a continuous effort, in 2022, the Ministry of Investment/Indonesia Investment Coordinating Board will launch PPI on several sustainable investment projects that can be accessed by investor, including the Pre-FS and their impacts on SDGs. There will be approximately 22 projects spread across 13 provinces. The project will consist of two main sectors, which are utilization of natural resources and manufacturing, with focus on new and renewable-based industries. Continuous Efforts to Mitigate Covid-19 Risk Strategy on covid-19 Experiencing the covid-19 outbreak for more than two years, government of Indonesia have become more knowledgeable and performed effective strategy in mitigating the risk to society wellness and economic stability. Government and society are preparing to live with covid-19 in daily activities, by undertaking prudential health protocol and strategy on covid-19 control and prevention. This strategy, among others, consists of following:
Intense intersectoral collaborations under the supervision of President Joko Widodo and coordination of the committee of national economic recovery and COVID-19 control (KPCPEN).
Case detection: Intensifying screening and epidemiological tests; Contact tracing; Genomic surveillance; Screening at country entry and exit points.
Therapeutics: conversion of 30-40% of hospital beds for COVID-19, ensuring adequate logistics and human resources, tightening criteria of hospital admission, establishing a center for isolation.
Vaccination: allocate more vaccines for high-risk areas, the establishment of vaccination centers, vaccination certificates as entry requirement of the public regions; rate acceleration on elderly and people with comorbidities.
Public health measures: micro-scale of social activity restriction, implementation of digital technology in public health measures.Relaxation on health protocols The outbreak has become more manageable particularly since early 2022. The activities of society have become normal and the economic recovery is ongoing. Some relaxation on health protocols have been implemented, such as:
People are allowed not to wear masks in open spaces from 18 May 2022. Mandatory mask is used only for indoor activities and crowded areas.
Domestic and international travellers do not require a PCR test and quarantine if they have been vaccinated at least two doses but still have a temperature check.
People were allowed to go home/ “mudik” for Eid al-Fitr.
Only people with moderate and severe covid-19 symptoms are suggested to be hospitalized.
Medicine package delivery for COVID-19 confirmed positive individuals with asymptomatic or mild symptoms based on NAR database.National Economic Recovery (PEN As a comprehensive and longer-term strategy to recover the national economy affected by covid-19 outbreak, the government of Indonesia has been carrying out the National Economic Recovery (PEN) program since 2020. In 2020, focus of the government was to take extraordinary measures to handle covid-19 and increase social protection and business protection. Moreover, during 2021, the government focused on surviving and facilitating recovery program, by continuing efforts on covid-19 handling, vaccination program, social protection, and business protection. As a follow up, in 2022, the government will prioritize the job stimulating recovery program. Besides continuously handling covid-19 outbreak, the government will also focus on creating job for society (through labor intensive program and pre-employment card); providing social protection (such as village fund, non-cash food aid, and cash assistance); offering business incentive for targeted sectors (such as tax incentives and business ease support); and providing financial support particularly to micro, small and medium enterprises (through interest-rate subsidy and credit guarantee). Regarding the tax incentives, government offers several form of tax incentives to enhance investment climate and strengthen domestic industrial structure, such as tax holiday, tax allowance, investment allowance, and super deduction tax. Comprehensive Economic Partnership Agreement (CEPA) Indonesia is currently negotiating bilateral comprehensive economic partnership agreement (CEPA) having investment chapter, which are the Indonesia-European Union (EU) CEPA, Indonesia-Canada CEPA, Indonesia-Mercosur CEPA. In regional level, Indonesia with other ASEAN Member States are also undergoing the negotiation of the Upgrade ASEAN – Australia- New Zealand FTA, the Work Program of ASEAN – Hong Kong Investment Agreement, and the plan to upgrade the ASEAN – China Investment Agreement, as well as will start negotiation of ASEAN – Canada FTA in August 2022.
After completing the signing, Indonesia is now processing the ratification of several agreements, namely Regional Comprehensive Economic Partnership (RCEP), Indonesia-Korea CEPA, Indonesia-Swiss Bilateral Investment Treaty (BIT), and Indonesia-United Arab Emirates (UAE) CEPA. Moreover, Indonesia has recently completed the ratification procedures for Indonesia – European Free Trade Association (EFTA) CEPA and Indonesia-UAE BIT.2023 Indonesia’s Recent Strategy and Priority in Attracting Foreign Direct Investment Promoting Investment in Nusantara (New Capital City of Indonesia) The government of Indonesia has decided to develop a new capital city in Nusantara (IKN), East Kalimantan by enacting Law Number 3 of 2022 concerning the State Capital. This development is a milestone in a new era of regional development and new economic centers in the regions, as well as a symbol of a big push strategy to accelerate growth and equal distribution of the national economy. It is expected that this relocation will become a new economic driver to push GDP to USD 180 billion and create 3 million new jobs.
The government has prepared several legal instruments, including revision of Law Number 3 of 2022, to ensure the development of IKN is on schedule. The development of IKN will be conducted in several stages from 2020 to 2045 and funded from state budget, public-private partnership, state-owned enterprises, and private investment. The development of IKN has also been included in the National Strategic Project (PSN) list so that the government can provide various incentives and facilitation measures to investors in conducting their investments.
To ensure certainty for potential investors of IKN development, the government enacted Government Regulation Number 12 of 2023 on Business Licenses Provision, Ease of Doing Business, and Investment Incentives for Investors in IKN. Among others, the investors in IKN will be exempted from minimum foreign ownership and validation of Taxpayer Status Confirmation (KSWP). The spatial utilization permit will be issued automatically in the OSS system based on Spatial Planning Zone Plan (RDTR), which can be adjusted according to the needs to accelerate IKN development. Moreover, investors can also conduct the construction process immediately after obtaining land allocation from Capital Authority. In addition, sectoral ministries are currently preparing the implementing regulations to regulate more detailed the procedures of business licensing, ease of doing business and investment incentives.Encouraging Industrialization and Downstreaming of Natural Resources to Create Higher Added-Value Recently, the government of Indonesia has prioritized the industrialization and downstreaming of natural resources as the promoted sector for investment. This policy is intended to increase value-added creation and economic productivity by optimizing the use of natural resources. The focus of this downstreaming are, among others, nickel processing to support the development of electric vehicle ecosystem, coal gasification, natural gas processing, and downstreaming for food sector.
The government of Indonesia has introduced several policies to attract investment in downstreaming sector, such as:
a. Providing sufficient industrial infrastructure in industry area or special economic zones, i.e. port, energy, land, natural gas, and other infrastructures.
b. Creating a conducive industrial business environment through, among others, Job Creation Law, risk-based licensing, the Online Single Submission (OSS) system.
c. Providing fiscal and non-fiscal incentives.
d. Technology provision, building advanced human resources, and industrial machinery.
Escorting strategic investments that provide high value-added is part of government strategy so that the downstream mineral resources program will bring a positive impact on investment performance in the future, and become the largest investment realization supporting sector in Indonesia. The Ministry of Investment/BKPM will ensure economic transformation through the downstreaming of natural resources through a number of policies including the formulation of a Downstream Strategic Investment Roadmap (HIS).Investment Facilitation Measures to Boost Investment Realization Being aware of some obstacles faced by investors in conducting their investments, the government of Indonesia particularly through Ministry of Investment/Investment Coordinating Board (BKPM) has implemented several measures to facilitate investments such as:
a. Conducting targeted promotional activities, including providing specific and comprehensive information on investment opportunities and recent laws and regulations.
b. Establishing special task forces to accelerate investment and land use management consisting of several relevant ministries.
c. Assisting investors in obtaining various business licenses.
d. Assisting investors in financial closing.
e. Assisting investors from end to end in their investment realization including resolving implementation issues.
f. Assisting investors until production phase.
g. Continuously improving the Online Single Submission (OSS) system as a single portal for obtaining various business licensing and investment incentives.
h. Providing various incentives for investors.Improving National Strategic Project Facilitation To accelerate the economic development particularly through investment, the government has introduced the National Stategic Project lists have been introduced since 2016. The list has been amended several times and recently stipulated by Coordinating Minister of Economics Regulation Number 21 of 2022. Currently, there are 210 projects and 12 programs accounting for USD 383.09 billion investment, which 60% of investment is expected from private sectors. The projects cover infrastructures, energy, downstream industry, industrial estate, housing, plantation, food estate, tourism, technology, and education. Most of projects, which are 156 projects amounting to USD 69.48 billion, have been expedited towards completion. The rest of the projects mostly have passed the preparation stage.
All National Strategic Projects have been given special facilities to ease each of the project’s implementation as stipulated in the Presidential Regulation Number 109 of 2020. These facilities are among others land transfer fee waiver, electronic permit licensing, spatial planning, land acquisition, local content utilization, government guarantee, IT monitoring system, state-owned-enterprise appointment, debottlenecking, procurement acceleration, law settlement assistance, and project acceleration for private investment.
Recognizing the need to achieve Environment – Social – Government (ESG) goals, the government also has identified projects supporting ESG, which are the electricity program based on renewable energy and the EV Battery end-to-end Development Plant. The renewable energy-based electricity program consists of Electricity Infrastructure Development, National Rooftop Solar Power Plant, and Large-scale Solar Power Plant in Riau Islands. While, the EV Battery Industry consists of Nickel Smelter in East Halmahera and Integrated Smelter Development Project in Pomala.Omnibus Law on Job Creation through the Issuance of Law Number 6 of 2023 Revision of the Omnibus Law Omnibus Law on Job Creation or Law Number 11 of 2020 was promulgated on 2 November 2020, which served as a tool for long-term structural reform to accelerate economic growth and create higher employment. It revised and simplified 79 laws and implemented through 54 government regulations or presidential regulations, among others, to improve the investment ecosystem and business activities as well as the ease of doing business.
On 25 November 2021, the Constitutional Court made decision to instruct the government to revise the Omnibus Law’s methodology and review some substances objected by community. Subsequently, the government issued Government Regulation in Lieu of Law Number 2 of 2022 on Job Creation to implement that decision. Furthermore, the House of Representatives then approved that Government Regulation to become Law through the issuance of Law Number 6 of 2023 on Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation into Law. The new Law adopted almost all of the substances of Omnibus Law on Job Creation, including provision related to investment regime. Therefore, the implementation of Omnibus Law on Job Creation, such as the use of Online Single Submission (OSS) system as the single portal of investment licensing and incentives and more open business field for foreign investment, are still ongoing.
The enactment of new Law provides more legal certainty to business players, streamlined administrative procedures in obtaining licenses and more positive investment climate. The new Law also improves regulations on employment, halal product assurance/certification, and management of water resources.Clean Energy Sources and Green Economy through Reforms in Renewable Energy Sector Regulations Presidential Regulation Number 112 of 2022 on Accelerating Development of Renewable Power Supply In recent years, the Government of Indonesia aims to reach Zero Net Emission or Carbon Neutral by 2060 through stipulation of regulations to accelerate the investment in green energy, particularly by implementing reforms in renewable energy sector. The regulations target 708 Gigawatts of renewable energy from solar energy, wind turbine, hydro plants, bioenergy, nuclear plants, geothermal, and sea energy. These energy plants need storage infrastructures in form of pumped storages and BESS (battery energy storage system) equivalent of 60.2 Gigawatts. Furthermore, this energy plants development requires a total amount of investment around USD 1.1 billion each year until 2060.
After several years of discussions, the Indonesian Government has finally issued Presidential Regulation Number 112 of 2022 on Accelerating Development of Renewable Power Supply. This regulation introduces three key reforms to Indonesia’s renewable energy sector:
a. New Electricity Tariff Regime. Under the new regime, renewable electricity tariffs no longer have to directly compete with existing local electricity generation costs. Instead, the vast majority of renewable energy projects will be subject to the maximum benchmark price set out in this regulation, which will be re-evaluated annually.
b. Revised Power Purchase Agreement (PPA) Procurement Framework. This regulation expands the use of direct appointments (the more straightforward procurement process), particularly for hydro and geothermal power plants.
c. Prohibition on New Coal-fired Power Plants. This regulation formalises the Indonesian Government’s gradual discontinuation of new coal-fired power plants in the country (subject to certain exceptions). It also contemplates the preparation of a roadmap to accelerate termination of existing coal-fired power plant PPAs, subject to consideration of the power supply and demand balance.
These long-overdue reforms should generally be seen as a significant forward step for Indonesia’s renewable energy industry.Accelerating the Use of Electric Vehicles through Subsidy Value-added tax (VAT) incentive The Indonesian Government has committed to accelerate economic transformation through the development of electric vehicle ecosystem. Among others, the government encourages the use of electric vehicles through the implementation of value-added tax (VAT) incentive for purchasing electric car and bus, by enacting the Minister of Finance Regulation Number 38 of 2023.
The incentive is provided for:
Battery-Based Four-Wheel Electric Vehicles using more than 40 percent domestic components, the VAT borne by the Government will be 10 percent and the remaining VAT will be charged only 1 percent.
Electric Busses using more than 20 percent up to 40 percent domestic components, the VAT borne by the Government will be 5 percent and the remaining VAT will be charged only 6 percent.
Models and types of the vehicles fulfilling those requirements are stated in the Decision of Minister of Industry Number 1641 of 2023. Meanwhile, the criteria for domestic components should be in line with Presidential Regulation Number 55 of 2019 on Acceleration the Use of Battery Electric Vehicle on the Road and the Roadmap of Battery Electric Vehicle Acceleration Program run by the Ministry of Industry.
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