The Indonesia economy has struggled for some time – arguably more than most countries in Asia. That is precisely why President Joko Widodo introduced a policy package 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. The Indonesia economy 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
- Increasing business confidence
- Improving procedures of licensing
- Increasing 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
- Increasing 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.
Current taxes on interest income is 20%. However, the new tax rates on interest earnings will be as follows:
- 10% for deposits held one month
- 2.5% for deposits held up to six month
- 0% for deposits held longer than six months
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:
- 7.5% for deposits held one month
- 5% for deposits held three months
- 0% for deposits held six months
All of these three steps will greatly aid the Indonesia economy. Quality infrastructure, economic openness, and low levels of bureaucracy are all major things investors look for when choosing to invest abroad.
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