Indonesian Government Announces Tax Holiday for High-Value, Innovative Investors

24 , 2011 | Source: Jakata globe

Keen to boost foreign direct investment into Southeast Asia’s largest economy, Indonesia on Monday said it planned to grant tax holidays for major investors in select sectors.

Finance Minister Agus Martowardojo said the exemption would be granted to companies investing at least Rp 1 trillion ($117 million) in the base metals, oil refining, petrochemicals, renewable energy, machinery or telecoms equipment sectors.

“We have prepared the criteria for a tax holiday,” he said, adding that a regulation to that effect would be issued later this month.

The tax holiday will exempt investors from paying taxes for between 5 and 10 years from the start of commercial operation, he said. Existing investors that have operated commercially less than a year could also apply, he added.

“These companies must have at least Rp 1 trillion in investment and be considered pioneers in their industries,” Agus said.

He said companies that already received a tax allowance — a deduction in taxable net revenue by as much as 30 percent of the amount invested over the course of six years — were not eligible for the exemption and vice versa.

The coordinating minister for the economy, Hatta Rajasa, said the government was also planning to revise an existing tax allowance regulation for smaller investors this month.

The industry minister, M.S. Hidayat, hailed the announcement, saying industry players had been waiting for such a measure.

“This will boost our downstream industry, especially the agro-industry [cocoa, palm oil, rubber, etc.],” he said.

As an example of the possible impact of the measure, Hidayat said the planned $2 billion joint venture of China’s Wuhan Iron & Steel Corp. with Indonesian steel maker Gunung Garuda could materialize soon.

“With this incentive, industry can grow by up to 7 percent this year. In the first half, manufacturing grew by 6.61 percent,” the minister added.

Gita Wirjawan, the chairman of the Investment Coordinating Board (BKPM), said the tax holiday would spur foreign direct investment. He said there were several plans for large-scale investments that might deserve to be included in the scheme.

As example, he named a planned $6 billion dollar venture of South Korea’s Pohang Iron & Steel Company, an investment proposal by Kuwait Petroleum worth up to $7 billion and several other high-value plans.

Responding to the announcement, the Jakarta Composite Index rose by 1.8 percent to close at 3,960.02 on Monday, extending a three-day 4.2 percent advance. Construction-related firms gained on expectations of a pick-up in building projects.

 

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