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JAKARTA–Indonesia is set to issue new regulations to allow tax holidays for certain investments and to revise rules for tax allowances, part of efforts to lure much-needed investment that will help propel growth, senior government officials said Monday.
Finance Minister Agus Martowardojo said the government will issue a decree for a tax-holiday program that will apply to industries including base metals, oil refining, petrochemicals and renewable energy.
Mr. Martowardojo said at a news conference that to be eligible for a tax holiday, a project needs to involve investment of at least one trillion Indonesian rupiah ($117 million). The tax holiday would last at least five years from the time the project begins commercial operations.
The government also will expand the business areas eligible for tax allowances. To qualify for a tax allowance, which reduces the amount of tax that might stem from the project, companies need to make an investment of at least 50 billion rupiah.
The tax allowance is aimed at encouraging investments in sectors deemed high priorities by the government, in infrastructure development and in projects in remote areas.
A joint ministerial team comprising officials from the Ministry of Industry, the investment coordination board–known as the BKPM–and the Ministry of Finance will review investment proposals and decide whether they qualify for the tax incentives, said Coordinating Minister for the Economy Hatta Rajasa. The approvals will be given ona case-by-case basis, the ministers said.
The changes indicate the government is continuing to make efforts to boost foreign direct investment, said OCBC Bank economist Gundy Cahyadi, who forecasts FDI will reach a high of more than $15 billion this year.
Economists said the increase in foreign direct investment could also help to offset the impact on the country should there be sudden reversals of short-term inflows.
The government, however, still needs to simplify the permit process and sort out overlapping regulations, said Bank Internasional Indonesia economist Juniman, who like many Indonesians goes by one name.
Gita Wirjawan, who runs investment-coordination board BKPM, said heavy machinery maker Caterpillar of the U.S. as well as the steel-maker Posco and Hankook Tire Manufacturing Co. of South Korea have expressed interest in tapping the tax incentives. Industry Minister MS Hidayat said Kuwait Petroleum Co. and two other refining companies will also use the tax facilities to construct crude oil refineries in Indonesia. Kuwait Petroleum will likely invest around $8 billion for its project, he added. The companies couldn’t be reached to comment.
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By: Farida Husna and Andreas Ismar for the Wall Street Journal, Aug. 16, 2011
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