Commission XI: PFII Will Not Disrupt Domestic Financial Services

Jakarta (ANTARA) - Deputy Chairman of House Commission XI Mohamad Hekal has assured that the existence of the Indonesian International Financial Centre (PFII) will not disrupt the continuity of domestic financial services, as financial institutions in the area are prohibited from raising retail funds. “Banking financial institutions in the PFII cannot conduct retail business outside the PFII area. So, they cannot attract money or seek third-party funds from retail customers,” Hekal said when met by journalists at the Parliament Complex in Jakarta on Tuesday. However, Hekal added, banks operating in the PFII area are still permitted to channel financing for projects in Indonesia. He stressed that the main objective of establishing the PFII is to attract global funds, not money already circulating domestically. “Yesterday we also discussed this. If they (domestic financial institutions) enter (the PFII), we still limit the freedoms they enjoy, for example, whether their status changes to a domestic investment company. The agreement is that they remain as foreign investment companies as usual,” he explained. Hekal added that the government expects financial institutions in the PFII to bring large capital to finance investments, especially in foreign currency. However, the PFII is also not designed to be a place for speculation in the foreign exchange market. All financial instruments traded in the area will use foreign currency. “For them (financial institutions) to invest using foreign currency, they will not disrupt domestic banks. It would not be fair if they had a cheaper cost of funds while competing with domestic banks that incur higher costs,” Hekal said. As stipulated in the PFII Law, Hekal explained that all financial instruments traded in the PFII will use foreign currency. The existence of the PFII is expected to reduce the cost of funding. “According to the consultant used by Danantara, all credible international financial centres have succeeded in reducing the cost of funds by 200 basis points. That is in foreign currency. So, 200 basis points is very significant,” he said. By lowering the cost of funds and ensuring the availability of foreign exchange liquidity domestically, he said this is expected to reduce pressure on the rupiah exchange rate, especially when foreign exchange liquidity is needed to finance large projects. Regarding tax incentives, Hekal said all financial service players, both domestic and foreign, can enjoy a 0 percent income tax rate while operating within the PFII area. According to him, there is no difference in treatment between domestic and foreign financial service players as long as they are registered in the PFII area. “Yes, everyone can, as long as they are within the PFII area. But once they invest outside the PFII area, they will be subject to normal taxes,” he said. Hekal stated that the existence of the PFII is also expected to become a destination for placing family office funds from various countries. A portion of funds belonging to Indonesian citizens that are currently placed in Singapore, Hong Kong, and other financial centres are expected to enter the PFII. The DPR RI plenary session on Tuesday approved the Bill on the PFII to be enacted into law. There are 10 chapters in the new law, including those concerning business activities in the PFII, such as financial sector business activities, supporting financial sector business activities, and other sector business activities. The PFII Law also covers the institutional arrangements of the PFII, consisting of the PFII Advisory Board, the PFII Board, the PFII Management Agency, and the PFII Financial Services Supervisory Agency. In addition, there will be a PFII Arbitration Body and a PFII Court. A number of tax facilities and other special facilities offered in the PFII include income tax facilities, value-added tax and/or sales tax on luxury goods facilities, as well as customs facilities. The law also regulates the tax treatment of inheritances and the tax treatment of initial capital investments in the PFII. Furthermore, it regulates the rights and obligations of reporting and administration, as well as sanctions related to tax facilities and other special facilities for business actors, experts, or other parties in the PFII area. The chapter on the specificities of the PFII includes explanations such as licensing for the use of foreign currency and financial transactions in the PFII.