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Figure 2 - Current Account and Foreign Direct Investment (%GDP)
4
3
2
1
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
-1
-2
-3
-4
Foreign direct investment, Current account
net inflows (% of GDP) balance (% of GDP)
Source: World Development Indicators, the World Bank, 2015
billion in July 2013, and the consequent increase the facilities in 1984. By looking at Figure 2, it is
in the VAT registration threshold to IDR 4.8 billion obvious that external and domestic macroeconomic
may have negatively impacted both Corporate conditions play a major role in determining number
20
Income Tax (CIT) and VAT collection . For 2015, of FDI. Association between increasing numbers of
the Government sets a target of IDR 1,762 trillion tax incentive regulations enacted and FDI is not
from tax revenue as stated in the revised budget. It fully comprehensible and needs further research.
requires extra efforts that in the Financial Note of
The Government of Indonesia recently enacted
the Revised Budget states increased effectiveness
the new Regulation No. 18/2015 on tax allowances
and efficiency in collection, resting on institutional
for new investment in certain business and/or
and organizational improvements, including
regions. The Government is offering various type of
improved human resource and IT capacity, and
tax incentives such as tax holidays; tax allowances
better exchange of information with other agencies
for investment in certain business sectors or
and institutions. On the tax policy side, numerous
regions; simplification of income tax calculation
announcements have been made regarding policy
with certain amount of gross income; income tax
measures that the government is considering
reductions for publicly listed companies; and tax
that includes a travel ban and jailing of large tax
reductions for resident corporate taxpayers. Scopes
debtors, the possibility of tax amnesty, and increase
of new/pioneer industries that are eligible to tax
in mining royalty rates, and the introduction of
holidays are basic metal industries, oil refineries,
new taxes on new oil and gas production sharing
oil and gas source-based organic chemicals,
contract (PSC) holders.
machinery, renewable resource industries, or
Current account deficit narrowed from more telecommunication equipment. The companies
than 3 percent in 2013 to around 2.8 percent of must be newly established and conduct their
GDP in 2014. However, both exports and import business within the abovementioned scopes. The
were declined by 10.4 percent and 5.9 percent main requirement is the company needs to make
respectively in quarter 4 2014. The continued investment of IDR1 trillion at minimum. As part
weakness in exports and imports is consistent with of this facility, Directorate General of Tax (DGT)
soft external and domestic demand conditions. will exempt the companies from paying corporate
In addition, both net FDI and portfolio inflows income tax for about 5 to 10 years, from the start-
were surging and start diminishing in quarter 4 up of initial production, a 50 percent tax reduction
compared to the previous four quarter. The impact for two years after the tax holidays period ends and
of granting tax facilities during 2005-2013 on FDI subject to extension with further consideration
was not completely clear. The FDI increased with from the DGT.
or without the tax incentives. These conditions
Under the new regulation, furthermore, it states
also happened before the Asian Crisis. For example,
that 66 business sectors and 77 business sectors
the FDI in Indonesia increased significantly after
in certain regions are eligible for tax allowances.
In order to receive the allowance, DGT scrutinize
20 The World Bank,” Indonesia Economic Quarterly: High Expectations”,
March 2015. the eligible recipients by their investment plan,