Indonesia has struggled for some time in the midst of a worsening global economy – arguably more than the majority of countries in Asia. That is precisely why President Joko Widodo has introduced a policy package that is aimed to bring back momentum.
The Indonesia economy has been on the downfall for some time now. At the beginning of 2015 the country’s currency, the rupiah, fell to its lowest level since the Asian Financial Crisis in the late 1990s.
Indonesia has set a target of 7% GDP growth by 2017. The key levers that will be used to meet this target will be through increased infrastructure spending and attracting more foreign investment.
Despite some positive steps toward recovery, 2015’s first quarter GDP growth of 4.71% brought up concerns that the government’s plans are not being put into action quickly enough. This was especially alarming since the first quarter growth mentioned before was the slowest year on year since the third quarter of 2009.
However, not all is lost for Indonesia as there have also been many positive signs for the economy. Indonesia leads Southeast Asia in foreign direct investment in (FDI) in 2015, a feat which the current president’s economic policy package is hoping to build upon to do more.
The new economic plan consists of three steps:
First Step: Get Rid of Bureaucracy
- Encouraging national industrial competitiveness through deregulation and de-bureaucratization
- Encouraging law enforcement
- Improving business confidence
- Improving working procedures of licensing
- Improving service quality
- Improving electronic-based services
- 89 of 154 regulations will be reviewed to eliminate duplication and strengthen the coherence and consistency of the regulations
- Conducting permit simplification
- Reducing the number of irrelevant regulations that hamper the competitiveness of national industries
Second Step: Boost Infrastructure
- Accelerating the procurement of government goods and services
- Permit simplification
- Completion of spatial layout and land supply
- Discretion in resolving barriers and legal protection
Third Step: Revitalize Indonesia’s Property Market
- Increase investment in the property sector. The government will achieve this by doing the following:
- Opening up greater investment opportunities in the property sector
- Issuing a policy to encourage the construction of housing, particularly for low-income people
In fact, the first of the changes are expected to come into effect very soon. Indonesia recently announced that it will be providing tax relief to exporters on the interest earned from deposits in local banks. The government plans to provide the impetus for a stronger economic future for the country with its new tax rates and the wider policy package.
The new tax rates will be based on two things – whether the proceeds from exports are converted into rupiah and the length of time that they are kept in a local bank.
The current tax rate on interest income is 20%. However, the new tax rates on interest earnings will be as follows:
- Deposits held for one month: 10%
- Deposits held for up to six months: 2.5%
- Deposits held for longer than six months: 0%
If exporters choose to convert their proceeds into rupiah, they will be eligible for an even more generous tax reduction. In this case, the rates will be as follows:
- Deposits held for one month: 7.5%
- Deposits held for three months: 5%
- Deposits held for six months: 0%