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Indonesia will expand and simplify tax incentives it offers for investment in special economic zones (SEZs) and develop more such areas, aiming to attract over $50 billion investment into those zones in the next decade, a senior official said on Thursday.
Authorities in Indonesia are concerned that it is falling behind other countries in the region in winning investment from companies moving supply chains out of China to escape higher tariffs amid the U.S.-China trade war, despite it being Southeast Asia’s largest economy.
Darmin Nasution, Indonesia’s chief economic affairs minister, said the government will simplify rules on its existing tax holiday incentives for investors looking to build facilities in special zones. “The SEZs are a form of infrastructure for investment that has the best facilities in Indonesia. We intentionally design them to be attractive,” Nasution said in a news conference.
The government will immediately grant investors a tax break based on the size of the investment under the proposed new rules, he said. For example, an investment above 20 trillion rupiah ($1.41 billion) would be eligible to get a corporate tax break for 20 years, Nasution said, compared with a similar investment outside of an SEZ, which would have to meet other requirements.
Seven new special zones will be launched across the country through 2020, including a digital park in Batam island and an export-oriented zone for electronics, automotive and basic chemical industries in central Java, Nasution said. Indonesia currently has such 13 zones.
Authorities are hoping to attract 726 trillion rupiah ($51.31 billion) of investment into SEZs by 2030 after the changes are implemented, officials said. Indonesia already has easier rules for payments of export, import, luxury and value added tax within SEZs, while regulations on foreign workers are also more relaxed compared to outside of the zones.