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Indonesia: Regulation to Encourage Investment in Industry

(Jan. 13, 2016) On December 28, 2015, the Government of Indonesia issued a new regulation that is expected to increase investment in developing industrial zones. The new legislation replaces parts of Government Regulation No. 24/2009, on industrial zones. Speaking on January 5, 2016, Imam Haryono, Director General for Industrial Region Development of the Ministry of Industry, said that the purpose of the regulation is to attract investors and help the growth of industrial zones across the country: “[w]e want to make [the incentives] more attractive and wide-spread.” He added that the implementation of the regulation would be reviewed every five years. (Khoirul Amin, Indonesia: New Regulation Aims to Attract Investment to Industrial Zones, JAKARTA POST (Jan. 7, 2016); Peraturan Menteri Perindustrian [Ministry of Industry Regulation] 24/M-IND/PER/2009 (Feb. 19, 2009), Ministry of Industry website [click on link to pdf].)

Provisions

The regulation establishes four different categories of industrial zones in different regions of the country, based on their degree of development: developed industrial estates in Java; developing estates in southern Sulawesi, eastern Kalimantan, parts of northern Sumatra, and southern Sumatra; potential estates in northern Sulawesi, western Kalimantan, Bali, and Nusa Tenggara; and potential estates in Papua and West Papua. Businesses in the less developed zones will be eligible for greater incentives, in order to stimulate investment there. (Indonesia: New Regulation Aims to Attract Investment to Industrial Zones, supra.)

The regulation also simplifies environmental impact reporting requirements, allowing tenants of industrial zones to skip the step of filing an analysis of the environmental impacts of their businesses if the operator of the zone has already done so. Under the new regulation, zones established by the government can be operated by a public service agency. (Id.)

The Ministry will issue detailed regulations on the incentives that will be created based on the new regulation and that will apply to both operators of industrial zones and businesses located in them. The incentives will include tax holidays and tax allowances at the national level, in addition to relief from regional taxes and levies such as land and building acquisition fees, property taxes, and street lighting taxes. (Id.)

Background

Haris Munandar of the Ministry of Industry stated on November 26, 2015, that the regulation would be designed to insure development outside of the island of Java, where much of development is now centered. In the first nine months of 2015, 19.9% of all local and foreign investment in Indonesia went to projects in West Java and another 11.8% went to East Java. Munandar noted, however, that the State Secretariat had rejected a clause in the original draft of the regulation that had permitted the acquisition of land for industrial areas through the use of the public interest principle. (Khoirul Amin, Govt to Introduce Industrial Zone Regulation Next Month, JAKARTA POST (Nov. 27, 2015).)

Acquiring the land for industrial zones has been a block to the creation of a number of projects in Indonesia, including a large-scale power plant planned for Batang, in Central Java. According to Munandar, the Ministry revised the regulation’s provision that had been rejected, in order to ease the acquisition of land for development. (Id.)

Reaction to the New Regulation

Jongkie Sugiharto of the Association of Indonesian Automotive Manufacturers praised the new regulation, noting that sales of automobiles have been slow and that “[a]ny incentives would be significant.” He predicted that although car sales will increase this year, they will still not reach the levels of 2013 and 2014. (Indonesia: New Regulation Aims to Attract Investment to Industrial Zones, supra.)