Tax exemptions to lure investors

BTimes, January 27, 2013

INDONESIA'S government plans to exempt corporate dividends that are being reinvested in the country from being taxed, as part of its efforts to attract more foreign investment.

Foreign companies sent home about US$18 billion (RM60 billion) of their earnings annually in the past few years from Indonesia, according to data from the central bank. That amount was equal to more than 80 per cent of last year's US$22 billion foreign direct investment.

Mahendra Siregar, chairman of Investment Coordinating Board (BKPM), said he has discussed the matter with Finance Minister M. Chatib Basri and that they were currently discussing the appropriate mechanism for the dividend tax exemption.

"The incentive is aimed at encouraging foreign investors to reinvest their profits in Indonesia, and not to take them home," Mahendra said on Thursday.

"We don't want investors to become confused or see it as negative and inconsistent."

Mahendra was speaking ahead of "Indonesia Night", a meeting between government officials and global entrepreneurs on the sideline of the World Economic Forum Annual Meeting 2014 in the Swiss city.

Attracting more foreign investment was part of the country's efforts to bring economic growth back to 6.5 to 7.0 per cent from this year's projected growth of between 5.7 and 5.8 per cent.

Indonesia booked a record 398 trillion rupiah (RM110 billion) in domestic and foreign investment last year.

Investment in the country is estimated by the government to increase by 15 per cent this year to 458 trillion rupiah as more sectors are opened up for foreign investment.

Mahendra said that investments made up 33 per cent of Indonesia's gross domestic product (GDP) last year, up from about 25 per cent five years ago.

In order to achieve economic growth of 6.5 to 7.0 per cent, Indonesia needs to push investment contribution up to 40 per cent of GDP, he said.

The finance minister said such high economic growth was needed to create jobs for the country's growing population.

"Whoever becomes the next president must create job opportunities to overcome poverty," Chatib said. Indonesians are set to elect a new president in July to a five-year term.

Indonesia each year is seeing more than one million people coming into its workforce, which now consists of 111 million people, according to data from Central Statistics Agency.

Chatib said Indonesia would grow below six per cent in 2013 and 2014, due to the United States' move to taper its monetary stimulus programme and economic growth in industrialised nations being low, which could disrupt investment in emerging markets, including Indonesia.

Still, boosting investment in Indonesia is not merely about providing tax incentives or blaming developed countries on monetary policy. The United States Federal Reserve plans to scale back its stimulus spending plan, while Japan's central bank has helped in devaluing the yen to boost exports.

"It's true that the US Fed's and Bank of Japan's policies are giving Pak Chatib Basri a headache, but businessmen are also hoping that the Indonesian government would continue to improve policies and fix structural problems in the country," said Lippo Group executive director John Riady.