The idea, which could take the form of a tax allowance, will be discussed with the Finance Ministry next week, said Industry Minister Airlangga Hartarto after speaking at the Trade Ministry’s meeting on Wednesday.

“We proposed a 5 percent tax cut, but it should be used for investment instead of dividend payments. That will push [business] expansion,” he said as quoted by kontan.co.id.

(Read also: Government launches import facility for export-oriented SMEs)

A wide variety of labor-intensive industries would be covered by the proposed tax cut, including textile and textile products, footwear, miscellaneous and creative industries such as toys and fashion as well as pharmaceuticals and finished goods, such as tires and electronics.

With such an incentive, Airlangga said Indonesia’s labor-intensive industries could boost their exports to European countries and seek opportunities in Australia, regions that both contributed more than 20 percent to the country’s exports.

Businesspeople said previously they had no issue with the government’s efforts to boost tax revenue - but the country’s high income tax rates compared to its neighbors are seen as discouraging for companies to improve their tax compliance.

Indonesia sets an income tax rate at 28 percent for institutional taxpayers, higher than the range of 10 to 16 percent set by neighboring Singapore. The government has voiced the idea of reducing the rate to 17 percent, but such a move would require a legal amendment. (bbn)

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