The enactment of the Special Economic Zones Law by the House of Representatives on Tuesday has drawn a mixed bag of responses, with one respected academic welcoming it and the outgoing industry minister likening it to a case of locking the stable door after the horse had bolted.
The new legislation, which is mandated under the 2007 Investment Law, envisages the development of modern industrial clusters catering to both domestic and multinational companies.
The zones will provide companies with fiscal incentives, such as reduced corporate-income and land taxes, and will exempt them from value-added and luxury goods taxes. Companies will also enjoy nonfiscal incentives, such as streamlined immigration procedures and easier access to land and business permits.
Unlike in existing free-trade zones - which are restricted to international companies - imports of raw materials and exports of finished products will not be tax-exempt, but goods produced in the clusters will be allowed to be sold on the domestic market.
Professor Dadan Umar Daihani, a senior industrial researcher at Trisakti University, said the law would help provide exporters with integrated infrastructure and facilities and attract more foreign money into the country.
He said it was a positive step toward making the nation more attractive to overseas capital, and would generate higher foreign-exchange earnings through exports.
“In the past, the government tried to encourage industrial growth by establishing bonded and free-trade zones that provided special treatment to investors,” Dadan said.
“Hopefully this time around, things will be better thought-out and more effective in developing integrated industrial clusters in the special economic zones.”
Industry Minister Fahmi Idris appeared unimpressed, however, saying that the time had passed for the establishment of special economic zones.
“It’s too late in the day,” he said on the sidelines of the House plenary session. “Why didn’t the government establish SEZs 10 years ago?”
Few details have been released on how the zones be implemented, with Trade Minister Mari Pangestu - who was also present at the House session on Tuesday - saying that the specifics would be set out in the implementing regulations, which she added would be issued by the government within the “next one to two years.”
To date, the government has received proposals from local governments for the establishment of up to 22 SEZs.
Mari said that the new law also envisaged the eventual conversion of the country’s existing free-trade zones, such as Batam, Bintan and the Karimun islands, into SEZs.
“We won’t immediately revoke their status as free-trade zones until their terms expire,” she said. “But if a free-trade zone wishes the change to be brought forward, we will be happy to oblige.”