Indonesia’s Prime Minister, Joko “Jokowi” Widodo, introduced two omnibus bills on job creation and taxation in February 2020 to implement significant business reform and attract increased investment. Passage of these bills would amend several laws to improve the country’s business environment for companies across industries. Highlights of the two omnibus bills include:
- Relaxation of environmental standards and reduced requirements for obtaining building permits.
- Reductions in the restrictions on foreign investment in several industries, including healthcare, telecommunications, and oil and gas drilling.
- Corporate tax cuts from 25% in 2019 to 22% in 2020 and 20% in 2023, a new tax on internet-based companies, and the unification of regional taxes.
Our view
The government has postponed deliberation on these omnibus bills as it handles continuous COVID-19 outbreaks. Additionally, significant political backlash against sections of the two omnibus bills has prevented progress. However, the government has already passed and implemented selected measures from the two omnibus bills such as the reduction in corporate taxes, introduction of a digital tax, and amendments to the mining law to attract increased downstream investment.
The Jokowi administration is expected to continue passing measures piecemeal as it deals with further COVID-19 outbreaks across the country.
Business implications
Executives should align with their local teams on the expected timelines for reforms and their potential impacts on the business environment. Companies should also evaluate the impact of already-implemented policies on their operations. Lower corporate taxes should reduce costs for local business operations and distributors, while the introduction of the digital tax will increase prices for consumers and/or costs for online retailers. Amendments made to the mining law have improved the investment attractiveness of Indonesia’s mining sector. Companies should consider increasing their engagement with government officials and lobbying for policy measures that will support their business.
For more insights on the overall 2021 outlook for Southeast Asia, register for our upcoming webinar: The Outlook for Southeast Asia.
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