Indonesia pledges new tax exemptions, full foreign ownership among incentives to woo SEZ investments
The total investment into the country’s special economic zones was US12.9 billion by the first half of 2024, with plans to inaugurate four more SEZs worth an additional US$9.9 billion.
Special economic zone Galang Batang in Riau Islands, Indonesia. (Photo: kek.go.id)
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JAKARTA: Indonesia will provide longer tax exemptions and other fiscal and non-fiscal benefits to investors in its special economic zones (SEZs), a senior government official has confirmed.
Meanwhile, the government is planning to add four more SEZs to the existing 22 designated economic areas in the country, with a total investment value of 161 trillion rupiah (US$9.9 billion).
On Monday (Jul 22), SEZ National Council secretary general Rizal Edwin said that a 20-year corporate income tax exemption will be given to investors with a minimum investment value of 1 trillion rupiah.
Those with a minimum investment of 500 billion rupiah will get a 15-year corporate income tax exemption, while those with a 100 billion investment will receive a 10-year corporate income tax exemption.
Other fiscal incentives for SEZs are tax holidays, tax allowances, value-added tax exemptions, tax exemptions on luxury goods sales and regional tax exemptions.
According to Mr Rizal, non-fiscal measures include the government’s assistance in providing facilities for investors in the SEZs, such as building use rights for up to 80 years, ease of access permits and 100 per cent foreign ownership.
"The provision of these facilities is to increase Indonesia's attractiveness and competitiveness to attract foreign investment in the SEZs through government regulations, which can help to boost the economy in the area and eliminate regional inequality," he said, as quoted by local media platform Tempo.
In Indonesia, not all businesses are allowed to be 100 per cent owned by foreign investors. Industries where businesses can be fully foreign-owned include those in the oil and gas construction services, oil and gas drilling at sea, geothermal drilling, the timber industry and internet service providers.
Indonesia first started developing SEZs in 2009, with the passing of the Law Regarding Special Economic Zones. According to this law, these designated areas which are subject to unique economic regulations, should aim to create more equal economic development among different regions which have traditionally been concentrated in Java and Sumatra.
The first SEZ in Indonesia was in Tanjung Lesung, in Java’s Banten province which opened in 2012. The current 22 SEZs spread throughout Indonesia mainly focus on the industrial, tourism and digital sectors.
Mr Rizal said that the existence of SEZs has also been useful in maximising industrial activities and in promoting exports and imports of goods and services which have high economic value.
By the first half of 2024, the total investments in the SEZs had reached 205.2 trillion rupiah, creating about 132,200 jobs.
According to Mr Rizal, in the first half of 2024, the investments received reached 31.4 trillion rupiah, or 40 per cent of this year's target of 78.1 trillion rupiah.
Four new SEZs set to open soon will have a total investment value of 161 trillion rupiah.
They consist of two in Batam which will focus on logistics, energy development and health tourism; one in South Tangerang, focusing on research, digital economy, educational, health, and creative industries and one in Morowali, Central Sulawesi, which will engage in logistics and energy production and processing.
The establishment of these four new SEZs is still waiting for approval from President Joko Widodo, Mr Rizal said.
He added that the government is also reviewing proposals to open seven new SEZs across Java, Sulawesi, and in East Kalimantan, close to the new capital, Nusantara (IKN).
The government is also reviewing proposals to open seven new SEZs spread across Java, Sulawesi, and in East Kalimantan, close to the archipelago's capital city. According to Mr Rizal, these new SEZs are requests from foreign and domestic investors.
The two SEZs near Nusantara will focus on addressing the energy needs of the new capital city and function as a centre for mining activities.
"Regarding the IKN, one of them is the presentation of energy, such as smelters and nickel, bauxite and coal mining products to provide energy for IKN," Mr Rizal said, as quoted by Kompas.
