Finance Minister Sri Mulyani has said that the government is currently prioritising revisions to the corporate income tax law in order to cut the tax rate from 25 per cent to 20 per cent.
According to Sri, this would attract more investment.
“We’re working out how quick [this new policy] can be implemented and how much it will impact fiscal risks,” Sri Mulyani added.
The decision was made after President Joko Widodo expressed his disappointment about Indonesia’s low investment performance in the last few years. The president claimed that the new investment policy and licensing have not brought the desired results. In the first quarter this year, foreign direct investment has dropped by 11 per cent to $7.2 billion.
Aside from the elections in April, some forces are known to play a role in the decline. Indonesia’s corporate tax rates, which are the highest in Southeast Asia, have limited the country’s ability to attract investments that are leaving China due to the trade war between China and the USA.
Over the last few years, the government has attempted to offer tax breaks for different sectors, such as food and beverages, textiles, automotive, chemicals, and electronics, but few companies have been interested in them. Labour intensive businesses have also moved to countries such as Laos and Vietnam.
According to Sri, President Jokowi met with some business owners last week and has pledged to boost investment and exports this year. He had ordered his ministers to ensure that tax incentives are easy to implement.
Source: The Jakarta Globe
Image: Tempo