The government's plan to scrap an enclave concept within the special economic zones (SEZs) is opposed by lawmakers as badly designed and impractical.
Lawmakers said Thursday their study on industrial and residential zoning in several areas in the country, particularly Batam Island, revealed poor spatial planning, made worse by years of poor control.
They said that residential areas next to proposed SEZs on the island were chaotic and scattered between factories and business centers.
This, they said, would create inefficiency, greatly encouraging smuggling of goods in and out of the islands, making it impossible to create properly functioning SEZs.
Indonesia wants to follow China's example in creating competitive zones with special treatment on taxes and labor regulations for businesses oriented to exports.
This plan had been followed through in 2007 with the creation of Free Trade Zones (FTZs) in Batam, Bintan and Karimun islands with zero taxation on imports and exports to help local firms.
In a bid to take a more comprehensive approach to the creation of competitive zones, the government plans to replace the existing FTZ concept with the broader SEZ concept, which would create special clusters or enclaves for industrial areas, as well as separate FTZs and residential areas.
But in a bill proposed to the House of Representatives the government then scraps the enclave concept and demands that entire SEZs have exactly the same status as FTZs, with no import or export taxes.
Nasril Bahar, vice chairman of a special lawmakers committee on SEZs said that a team of lawmakers had visited Batam and discuss various matters on the proposed SEZs with local stateholders.
"It is better for SEZs to adopt the enclave concept, separating industrial zones, residential areas and FTZs. If the government insists on giving the entire proposed SEZs the same status as FTZs, then smuggling will prosper, as it will be very hard to monitor," Nasril said.
Speaking to the Post by phone, Bambang Susantono, Deputy Minister of Infrastructure for the Coordinating Minister for the Economy, said the government thought to transform all SEZs to have FTA status, after consulting with businesses and regional governments.
"Considering the existing spatial planning, (business players) said it wouldn't be practical to erect fences to separate these zones."
"Back then, we proposed for the two concepts, the whole area and the enclave. In the end, both businesses and the regional governments prefer the whole island concept."
Bambang said government is still open to ideas from lawmakers.
Committee chairman Irmadi Lubis said there were also other issues hampering the implementation of SEZs.
"Ever since FTZs were implemented in Batam, there hasn't been any sign of improvement in investment in the island. The multiplier effect has not shown any positive signs. So, we are still studying whether SEZs will create benefits," he said.
So far, he said, there are already 18 provinces demanding parts of their areas to be designated as SEZs.
"We expect to conclude the deliberation of the SEZ bill before our tenure at the House ends this year," Irmadi said.