Indonesia's Industry Minister Says Special Economic Zone Law Too Little, Too Late

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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />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.<br /><br />“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.<br /><br />“Hopefully this time around, things will be better thought-out and more effective in developing integrated industrial clusters in the special economic zones.”<br /><br />Industry Minister Fahmi Idris appeared unimpressed, however, saying that the time had passed for the establishment of special economic zones.<br /><br />“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?”<br /><br />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.”<br /><br />To date, the government has received proposals from local governments for the establishment of up to 22 SEZs.<br /><br />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.<br /><br />“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.”