Government's incentives needed to boost investment

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

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