JETRO asks RI to introduce tax incentives for investment

Adianto P. Simamora, The Jakarta Post, Jakarta

President of Japan External Trade Organization (JETRO) Hiroyuki Kato said Indonesia must follow the steps of its peers in the region by providing tax incentives to woo more investments from Japan.

"The government needs to quickly provide tax incentives to attract foreign investors, particularly the Japanese, as other ASEAN countries and China have offered such incentives," he told The Jakarta Post on Tuesday on the sidelines of a seminar.

ASEAN is the Association of South East Asian Nations.

Hiroyuki also said that the government had to work harder to improve the investment climate here.

"Japanese investors see the investment climate in Indonesia is not so good," he said, pointing to legal uncertainty and the lack of supporting industries.

Last week, a visiting delegation of Japan's Federation of Economic Corporations (Keidanren) led by its chairman Takashi Imai also urged the government to do more to improve the investment climate here.

According to a recent survey by the Japan Bank of International Cooperation (JBIC), Indonesia has continued to fall further behind China and Thailand in the competition for Japanese investment, and it could be overtaken by Vietnam and India if it does not take immediate steps to improve its investment climate.

Japan has been Indonesia's largest investor and creditor. The government is scheduled to meet with official creditor nations grouped in the Paris Club on Thursday to seek a rescheduling facility of around US$5.5 billion in official debt maturing this year and next. Minister of Finance Boediono, who visited Japan last week, said that the Japanese government was committed to supporting Indonesia's bid for a rescheduling facility.

Foreign investors have largely shunned Indonesia after the country plunged into an economic and political crisis in 1998.

The regaining of foreign investments is important for the recovery of the country's economy.

There has been word that the country's new investment law, currently being drafted by the Investment Coordinating Board (BKPM), would include tax incentives for foreign investors.

The new bill was supposed to have been submitted to the House of Representatives last week. BKPM officials said that the bill would be completed soon and be submitted to the House for approval within the next two months.

Hiroyuki said that Japanese investors would welcome such a move.

He said that Indonesia could adopt the tax incentive facility introduced by the Chinese government, under which foreign investors were exempted from corporate tax during the first two years in operation, and were only obliged to pay half of the tax from year three through year five.

Analysts have said that while competition among Asian countries for Japanese investment has been tight, Indonesia has done very little to attract the yen.