Indonesia has released the second of three deregulation/stimulus packages designed to boost a flagging economy and strengthen the exchange rate. The first (released September 10) was primarily an exercise in reducing red tape and regulatory confusion in the trade arena and did not garner a lot of attention and praise, perhaps because its hard to immediately see benefits when you are looking in the regulatory weeds. Darmin Nasution, the Coordinating Economic Affairs Minister admitted, “We issued too many deregulations in the first package and it made us seem to lose focus. Our explanation turned into numbers and people did not get the substance”.
However, the package announced Wednesday is more focused and could perk up the ears of investors who –as a whole– have been moving assets out of Indonesia’s capital markets. “We are making (investing in Indonesia) as attractive as possible,” said Chief Economics Minister Darmin Nasution, announcing the latest measures along with several other ministers. “We must fix, simplify, make it cheaper.”
Here is what you should know about “Installment 2”:
- Permit processing times slashed– New measures announced Tuesday included slashing the time taken to process investment permits from at least 8 days to just 3 hours, with processing for permits in mining and geothermal projects in forested areas to be cut from up to 4 years to about 15 days. The 3-hour time frame, however, is for investments over $6.8 million located in designated industrial parks employing over 1,000 people. Although when announced the facility was to be available immediately, officials have backtracked and say it will be launched in mid-October. The number of permits needed for mining exploration and for establishing a business in an industrial economic zone have been cut.
- Tax Reductions– Exporters who deposit foreign exchange revenue in Indonesia or convert it to rupiah will have withholding taxes from the current rate of 20% to 0% depending on maturity. The interest earnings of a one-month dollar-denominated deposit account would now incur a 10 percent income tax; six-month deposits would incur 2.5 percent and for deposit accounts over six months there would be no income tax. The government will remove value-added taxes for ships, planes and trains made in Indonesia. The VAT is also removed for imported aircraft and spare parts.
- Certificates of Deposit– Indonesia’s central bank, Bank Indonesia, will reissue three month certificates of deposit and two week repo agreements. “We want to drive