Celios: Labour-Intensive Tax Incentives Are Already Appropriate, Need Oversight

The Center of Economic and Law Studies (Celios) assesses the government’s move to reformulate tax incentives from a capital-intensive base to a labour-intensive one as appropriate, given that the substantial tax expenditure to date has not optimally created jobs.

Celios Executive Director Bhima Yudhistira states that the government allocates around Rp130 trillion annually for tax expenditure, particularly in the manufacturing industry sector. However, the amount of these incentives is deemed not to directly correlate with labour absorption.

“Many incentives such as tax holidays and tax allowances are ineffective. For example, in the smelter sector, there are companies that instead recorded losses after receiving incentives, so their contribution to state revenue is also not optimal,” he told ANTARA in Jakarta on Friday.

Bhima emphasises that the reformulation of tax incentives needs to be directed to be more on target and have a direct impact on job creation.

Celios also highlights the importance of oversight after the granting of incentives so that companies truly fulfil their commitments, including the absorption of local labour and compliance with the domestic component level (TKDN).

“Oversight of these fiscal incentives is important to see whether the companies given incentives perform well. This must be continuously monitored by the Ministry of Finance and technical ministries,” he said.

On the other hand, Bhima reminds that tax incentive policies need to be aligned with global trends, including the implementation of a 15 percent global minimum tax, which is part of the agreement of the Organisation for Economic Co-operation and Development (OECD) and G20.

Investment Minister and Downstreaming/Head of BKPM Rosan Roeslani, in a press conference at his office in Jakarta on Thursday (23/4), exemplified a coconut processing project worth US$100 million or around Rp1.72 trillion in Morowali, Central Sulawesi, which has the potential to absorb 10,000 workers, even though the investment value is relatively small.

“Our parameters are not solely that incentives are given because of large investments, but we also look at labour absorption,” Rosan said.

He hopes this policy can encourage a better investment climate in the country and become a solution to curb the unemployment rate.