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UPDATE ON INDONESIAN ECONOMIC REFORM “Incentive and Initiatives to Improve Investment Services”

BKPM. UPDATE ON INDONESIAN ECONOMIC REFORM “Incentive and Initiatives to Improve Investment Services”. By

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UPDATE ON INDONESIAN ECONOMIC REFORM “Incentive and Initiatives to Improve Investment Services”

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  1. BKPM UPDATE ON INDONESIAN ECONOMIC REFORM “Incentive and Initiatives to Improve Investment Services” By Mr. Muhammad Lutfi Chairman of The Investment Coordinating Board (BKPM) Republic of Indonesia Jakarta, December 18, 2006

  2. BKPM TAX INCENTIVE (Draft of Amendment of Govt. Regulation No. 148/2000) • Business Sectors • Flavor Industry • Textile & Garment Industry • Pulp, paper & paper board Industry • Chemical Industry • Other Chemical Industry • Rubber & Rubber Product Industry • Porcelain goods, electric & laboratory appliances Industry • Iron & Steel Industry • Metal Industry of non iron • Machinery and its equipment • Electric motor, Generator & Transformer Industry • Electronic and ICT Industry • Land Transportation Industry • Ship & its reparation Industry • Metal Production of Non Iron

  3. BKPM INVESTMENT ALLOWANCE (IA) (Govt. Regulation No. 148/2000) • Investment Allowance (IA) : Corporate income tax base is deducted by 30% • of investment realization. • Total 30% deduction is given in 6 years (5% deduction p.a). • Illustration: • Company X • Investment Realization : US$ 1billion • IA p.a. : 5% X US$ 1 billion = US$ 50 million • IA is constantly given for 6 years : 6 X US$ 50 million = US$ 300 million • 10 years Losses carry forward • Expedite depreciation

  4. BATAM AND BINTAN CASE

  5. BKPM EXPORT NODEX OF BATAM AND BINTAN 2002 – present: Slowdown Future : Bounce Back 1990 – 2001 : Golden Growth Export Value (US$ Billion)

  6. BKPM 1990-2001 GOLDEN GROWTH YEAR • Exclusive zone in term of FTZ • Exclusive land right, especially in Bintan - No VAT on raw materials - No import duties on machineries and equipment • Foreign ownership 100% • Govt. infrastructure investment (more than USD 1 bill) • Excellent investment climate

  7. BKPM MULTIPLIER EFFECT ON BATAM AND BINTAN • New FDI and DDI • Created at lest 200,000 new jobs • Export of non oil & gas out Bintan & Batam reach 14% of total national Nodex

  8. BKPM 2002-PRESENT : THE SLOW DOWN • Increase cost (minimum wage increased not in line with productivity) • Poor law enforcement on the ground • Uncertainty in government policy (Bonded Zone Plus, Enclave, FTZ etc.) • Rigid Labor Regulation (Companies reluctant to hire permanent workers) • Unable to claim their tax reimbursement as decreed by bonded zone plus.

  9. BKPM THE MULTIPLIER EFFECT • Existing companies started to leave and/or down size • Batam and Bintan export only contributed 8% to Indonesia Nodex • Investment comfort detoriating

  10. BKPM 2006 – FUTURE : THE BOUNCE BACK • Clarify law, rules & regulations • Free trade zone law (Law No. 36/2000) • Clean Policy on Value Added Tax • No import duties other than consumption

  11. BKPM CREATE PRO BUSINESS ADMINISTRATION • One Stop Shop – Integrated Investment Service Center (IISC) • Expedite customs and excise regulation • Tax • Visa • Man power

  12. BKPM Investment Coordinating Board Immediate Goals • Nodex Rebound • New investment: 1 bill in the next 3 years • Create 100,000 new jobs in the next 3 years

  13. INTEGRATED INVESMENT SERVICES CENTRE IN BATAM Integrated Investment Services Centre in Batam, located at Sumatera Promotion Centre Building which give comprehensive services to investors started Tuesday, 25th of July, 2006. Institutions that run Integrated Investment Services Centre in Batam are : - Investment Coordinating Board (BKPM) - Finance Department - Transmigration and Man Power Department - Legal and Human Right Department - City /Regency Government - Batam Authority

  14. INTEGRATED INVESMENT SERVICES (IISC) BATAM Approvals issued ( July 25 – December 1 2006, ) :

  15. MAN POWER OPPORTUNITIES BASED ON INVESTMENT PLANIN BBK (25 July – 1 December 2006) • Foreign Investment : • New Approval : 9,082 • Expansion : 1,645 • Acquisition : 1,549 • Domestic Investment : • New Approval : 516 TOTAL : 12,792 persons

  16. BATAMINDO

  17. BKPM COMPARISON OF COMPLETION TIME AT CENTRAL GOVERNMENT BETWEEN THE IFC’S SURVEY AND THE NEW INTEGRATED INVESTMENT SERVICES CENTER COMPLETION TIME (WORKING DAYS) APPROVALS/LICENSES *) Available on-line through notary

  18. COMPARISON OF COMPLETION TIME AT CENTRAL GOVERNMENT BETWEEN THE LPEM-UI’S SURVEY AND THE NEW INTEGRATED SERVICES UNIT BKPM *) Service not included in New Integrated Services Unit

  19. BKPM Simplification of starting business in Indonesia COMPLETION TIME (WORKING DAYS) STEP *) Available on-line through notary **) Could be done paralelly ***) Done by notary

  20. Thank you

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