I

ndonesian business groups are drafting a proposal containing a set of incentives that they believe the government should provide to enhance the business climate and help sustain economic growth amid the current global slowdown.

The Indonesian Employers'€™ Association (Apindo) would team up with the Indonesian Chamber of Commerce and Industry (Kadin) to list the necessary incentives, including other facilities outside tax, such as arrangements to ease the flow of goods in seaports, Apindo deputy chairman Anton Supit said on Wednesday.

'€œInvestors are currently losing confidence in the government, thereby it should send positive signals through steps that can help real problems faced by business players,'€ Anton said after meeting officials at the fiscal policy office.

One of the basic problems now troubling business players, he said, was unfriendly labor conditions resulting from poor policy making, coupled with poor law enforcement and an improper wage system.

Labor cost now accounts for 30 percent of total production costs in labor-intensive industries, such as footwear, garment and textile, which export US$20 billion every year and employ around 4 million workers, or one-fourth of
total industrial workers nationwide.

'€œOur economy is in a serious predicament, and if there'€™s no significant measures made to improve our competitiveness, it can result in unemployment,'€ Anton said, pointing out the need for special incentives to avoid massive layoffs.

After setting a new record high in investment in the past years, Indonesia '€” Southeast Asia'€™s largest economy '€” finally saw foreign direct investment (FDI) decline to its slowest growth rate since 2010 to settle at Rp 99.8 trillion ($9.19 billion) in the second quarter of this year, despite a 29.8 percent overall investment growth.

Slower investment, along with weaker domestic consumption, has contributed to deceleration of the country'€™s economy that expanded by only 5.92 percent in the first half of this year '€” the lowest level in the past three years.

Anton said the government could provide fiscal incentives to business players without changing its
revenue structure, for example by simplifying tax procedures.

An example of this would be elimination of taxes that should be paid by producers in bonded zones who outsource parts of their jobs to subcontractors outside the special zones. With a proposed change,
exporting manufacturers should not be required to restitute their taxes.

To accelerate the flow of goods in seaports, the government could exempt business players with a proven track record from full-checking procedures, Anton said.

In response to businesses concerns, Industry Minister MS Hidayat said the government would soon take necessary measures, including rolling out tax incentives for labor-intensive industries and setting a new formula for annual wage increases, which traditionally incites disputes between labor unions and employers.

'€œWe will [provide tax incentives] to reduce burdens [resulting from considerable wage increases], thus helping them to avoid laying off their workers,'€ he recently said, citing income tax exemption as an option.

Meanwhile, industrial bonded zone developer PT Kawasan Berikat Nusantara (KBN) president director Sattar Taba denied an allegation that several foreign firms in the area planned to relocate to neighboring countries due to annual wage increase.

'€œAt present, I don'€™t have any information regarding the relocation. Firms are required to report to us when they have such plans,'€ he told reporters at the Industry Ministry.

Around 300 domestic and foreign firms, of which 200 are labor intensive, operate in the bonded zone located in North Jakarta, employing around 100,000 workers to produce, among others, garments, textiles and wigs.