PFII Urged Not to 'Recycle' Domestic Funds
JAKARTA, KOMPAS — The national banking industry supports the establishment of the Indonesian International Financial Centre (PFII) as a gateway for global investment. However, the industry has cautioned that the special financial zone must not become merely a venue for relocating domestic funds in pursuit of tax incentives.
To provide added value to the economy, the PFII is expected to attract new capital from abroad and be built upon a foundation of legal certainty, strong governance, and international-standard supervision. These views emerged during a Public Hearing Meeting of the PFII Bill Working Committee at Commission XI of the House of Representatives (DPR) on Thursday, which featured the National Banks Association (Perbanas) and representatives of the Association of State-Owned Banks (Himbara).
Perbanas Vice Chairman Tigor M. Siahaan stated that the national banking industry is ready to be a strategic partner for the government in developing the PFII. However, he stressed that the zone’s success must be measured by its ability to attract new investment into Indonesia, not merely by shifting funds already within the country to the PFII area to obtain tax facilities. “We are ready to be a partner so that this PFII becomes a success in Indonesia. But the incoming funds must be additive, not funds that are just recycled,” Tigor said.
He argued that if incoming funds only originate from the transfer of domestic assets, the resulting economic benefits would be very limited. Such a condition could even potentially reduce tax revenues without creating new economic activity. Tigor assessed that the PFII should function similarly to international financial centres in Singapore or Hong Kong, serving as a gateway for cross-border investment while connecting global investors with various business opportunities in Indonesia.
In a similar vein, Eko Setyo Nugroho, Institutional Director of PT Bank Negara Indonesia (Persero) Tbk representing Himbara, said that the success of the PFII cannot rely solely on physical area development or the provision of fiscal incentives. Far more critical is the availability of a financial ecosystem that meets international standards. According to Eko, there are at least seven prerequisites that must be fulfilled: regulatory certainty, competitive fiscal incentives, modern financial market infrastructure, ease of doing business, availability of talent and professional services, transparent governance, and a dispute resolution mechanism that provides legal certainty for investors.
He added that if these prerequisites are consistently met, the PFII is expected to strengthen the competitiveness of the national financial services sector, deepen the domestic financial market, and attract more global capital to Indonesia. Himbara is ready to act as a gateway connecting foreign investors with various national investment opportunities, ranging from foreign direct investment, institutional investors, sovereign wealth funds, and family offices, to the capital market. Through this ecosystem, global capital is expected to flow directly into various national priority sectors.
Furthermore, Himbara proposed the establishment of an independent dispute resolution institution specifically handling activities within the PFII. Eko stated that the existence of such an institution is important to provide fast, transparent, and efficient legal certainty for business actors. He also encouraged clarity in the division of authority among regulators, the establishment of strict sanctions, and the strengthening of mutual legal assistance and extradition mechanisms to handle cross-border disputes.
Despite supporting the formation of the PFII, the banking industry reminded the government that various risks inherent in an international financial centre must be anticipated from the outset. Tigor noted that increasingly complex cross-border financial activities could potentially increase the risks of money laundering, tax avoidance, and misuse of tax facilities. As a member of the Financial Action Task Force (FATF), Indonesia must ensure that the PFII meets international standards in preventing money laundering and terrorism financing.
“We must also be vigilant against the risks of money laundering and tax avoidance. The regulatory environment must be supportive,” he said. He also reminded the government to anticipate the possibility of financial service activities becoming concentrated in the PFII area, causing financial institutions outside the zone to lose competitiveness. However, Tigor noted that such competition could also serve as a catalyst for improving the quality of the national banking industry, similar to when foreign banks first entered Indonesia in the late 1960s. “In the past, national banks were forced to compete with foreign banks. Now their quality is on par. I think the PFII can also be a momentum for the national financial industry to continue improving its competitiveness,” he said.
These inputs from the banking industry emerged amid discussions of the PFII Bill, which also highlighted the substantial fiscal incentives proposed by the government. In the draft being discussed by the DPR, the PFII area opens up the possibility of granting a corporate income tax reduction of up to 100 percent, as well as incentives for foreign experts in the financial services sector. Some circles have assessed that this policy needs to be carefully designed to avoid encouraging capital round tripping practices, a scheme where domestic capital is first transferred abroad before returning to Indonesia as foreign investment to obtain tax facilities.