Government's incentives needed to boost investment

The Association of Indonesian Industrial Estates (HKI) held its national meeting in Cilegon, Banten on July 19, 2002 to discuss the association's agenda and possible breakthroughs that could be made to revive investment activities. Below are excerpts taken from an interview with HKI Chairman Basroni Rizal on some important issues discussed during the meeting.

What are the main results of the meeting?

First, there was a consensus among HKI members in the meeting on the need to consolidate the organization and inform the public about the significant role of the industrial estates as a non- fiscal incentive in stimulating activities in the manufacturing sector, in creating employment and in opening new business opportunities. A survey has indicated that every 100 job openings in the manufacturing sector can create 65 employment opportunities in the non-formal sector. Is there anything more important for people other than having a job?. But industrial estates cannot work alone. There should be support from the government in providing a favorable investment climate such as through the issuance of conducive investment regulations and clear-cut policies both in industrial activities and trade. A labor policy that can create "industrial peace", legal certainty, political and social stability as well as creating a secure environment are no less important in improving business confidence.

Can you elaborate on what the association's members really expect from the government?

We require that the draft of the Investment Law proposed by the Investment Coordinating Board (BKPM) be able to clarify the rights and obligation of foreign and domestic investors. The law should, for example, be able to guarantee the right of foreign investors to repatriate their capital, royalties or profits, the right to own or to use land as well as the guarantee that there will be no nationalization of foreign assets. We also propose the reintroduction of a tax holiday especially for qualified investors. It is therefore important for the government to make a blueprint as the foundation for the country's industrialization program. With such a blueprint, the country's industrialization program will be carried out based on existing priorities. It means that a foreign or local investor who is involved in non- priority industrial activities will have no chance to benefit from the tax holiday.

Is it still relevant for the government to give a tax holiday while the International Monetary Fund (IMF) is proposing for an increase in corporate income tax?

Is it true that the IMF made such a proposal? If that is the case, we don't have to heed it. Even South Korea which in many aspects is more advanced than Indonesia provides tax incentives to investors. Foreign investors in that country, who meet certain criteria are exempt from corporate tax payment for 10 years. Are the Koreans stupider than us? Actually what we really want is exemption from corporate income tax. It is not really a big thing. Most start-up companies still suffer losses during the early years of their operations and it means they do not have to pay income tax. Even if they are freed from corporate tax payment, the government still gains from their existence through income tax from their employees, and other income from valued- added tax, sales tax on luxury goods, import duties and property tax. The introduction of the tax holiday will encourage more investments and this will subsequently have a multiplier effect on the economy such as the creation of more employment and supporting business opportunities.

How about investment licensing procedures?

We propose the establishment of a one-stop investor service at BKPM and investment offices in regencies or municipalities. As we know the granting of a tax holiday is the authority of the central government, in this case, the Ministry of Finance. However, we feel it is the right time now for the ministry to delegate such power to BKPM or the Ministry of Industry and Trade. Such institutions should also be given the authority to grant investors a status as Foreign Direct Investment (FDI) so that they will be able to receive privileges and guarantee from the government more easily.

The delegation of such power to local governments is important to help revive investment activities which have declined sharply in recent years due to the worsening investor' confidence.

Although (according to the Autonomy Law) local or provincial governments are not allowed to issue policies related to foreign affairs, monetary and fiscal matters, they should be given the right to introduce a tax holiday to start-up companies involved in certain business fields.

This is important to enable them to attract investors and at the same time to stimulate their economic activities. The issuance of licenses such as those for building permits or IMBs or foreign workers's permits should be made under a one-stop service as pioneered by the regent of Sidoardjo in East Java. The main point is that the delegation of power in the field of investments should be streamlined and simplified so that investors will not face any difficulties in obtaining permits to start up their businesses. If foreign workers, for example, have to go through a complicated procedure to obtain a work permit, don't blame them if they work only with a tourist visa.

Do you think that solving the employment problem is so critical and urgent?

In fact our real threat is not inflation as many experts fear, but the continued increase in the number of unemployed people. In a time when exports have declined, we don't have any other option than to turn to the domestic market. When state budgets can no longer function as a stimulus for economic growth, we have to seek foreign direct investment. It is impossible to spur the people's purchasing power if there are so many people unemployed. That's why we need a breakthrough to achieve an economic growth rate of between 6 percent and 7 percent to help settle the acute unemployment problem. -- Hendarsyah Tarmizi

1