Despite considerable macroeconomic improvements, Indonesia still needs to review its tax system and labor laws if it wants to compete with other countries in attracting foreign investment, American businesspeople say.
During a meeting with Industry Minister Fahmi Idris here Friday, the American businesspeople representing major multinational companies said the sales tax on luxury goods and uncertainty in labor laws remained major obstacles to foreign investors doing business in the country.
The businesspeople said the tax and labor problems made Indonesia less attractive than other Asian countries such as Vietnam.
Speaking to the press following the meeting, Minister Fahmi acknowledged the American businesspeople's concerns over the high luxury tax and labor problems.
The businesspeople asked the government during the meeting to review the luxury tax system, which they said hampered the sale of luxury goods such as expensive electronics products and cars.
Representatives of major American companies including Ford Motor Company, General Electric, Freeport McMoran, Coca-Cola Company, ExxonMobil, McDermot International and Oracle Corporation are currently visiting Indonesia as part of a trade mission organized by the U.S.-ASEAN Business Council.
Besides meeting the minister of industry, the delegates also met with other government officials including Energy and Mineral Resources Minister Purnomo Yusgiantoro.
Fahmi said his department was coordinating with the Finance Ministry in reviewing the tax system, particularly the luxury tax.
The government imposes a luxury tax ranging between 10 and 50 percent. For auto sales, the rate of the luxury tax is 30 percent for a passenger car with an engine capacity less than 1,500 cc and 40 percent for autos with a higher engine capacity.
The local automotive industry has asked the government to impose a luxury tax based on prices rather than the type and engine capacity of vehicles.
U.S.-ASEAN Business Council president Matthew P. Daley said Indonesia also needed to change its labor laws to attract more foreign investors.
"Indonesia is known as the country which applies the biggest severance pay. If you compared the severance pay in Thailand, Vietnam, the Philippines and even in the U.S., they are far lower than Indonesia's. You will find in that area, Indonesia is not competitive, especially in the labor-intensive industry sector," Daley said.
He said the government needed to adopt a national "single window system", under which all business permits needed by investors are issued in one place using an electronic system.
He welcomed the government's recent decision to enact a special regulation on free trade zones as "one approach that has been helpful for American companies to do business in Indonesia".
Earlier this month, the government issued three government regulations to make the entire area of Batam island and parts of Bintan and Karimun islands a free trade zone, in which all import tariffs, value added taxes, luxury good taxes and excise duties can be eliminated.
The council's director for Indonesian affairs, Christopher Anderson, said during the five-day visit here, four companies including Ford, Caterpillar, power company AES Agriverde and International Paper had indicated their intention to expand their businesses in Indonesia.
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