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Jakarta Post

Indonesia can be a major manufacturing center: Scholar

  • Tassia Sipahutar

    The Jakarta Post

Jakarta   /   Thu, February 12, 2015   /  07:37 am

Indonesia stands a chance of becoming a major manufacturing center in the region provided that it sticks to its planned agenda on taxes and other reforms, according to a scholar.

According to Mark Crosby, an associate professor at the Melbourne Business School, China has now become a relatively expensive place because of its growing manufacturing costs.

'€œToday China is already expensive in most industries. It'€™s not a cheap manufacturing center anymore. The questions is where businesses are going to move to,'€ he said during The Economist'€™s '€œIndonesia Summit 2015: New Light or False Dawn?'€.

One option is to move the businesses to other emerging economies, including Indonesia. The business opportunities in Indonesia, Crosby said, would be supported by the country'€™s status as a large market and its sizeable labor force.

Latest data from the Central Statistics Agency (BPS) show that there are more than 114.6 million active workers across the country, representing almost 50 percent of total population.

Crosby also argued that in terms of costs, businesses would be in the right place and that the establishment of more special economic zones would also help lure investors.

At present, such zones have already been created in Batam, Bintan and the Karimun islands in the Riau Islands province.

However, according to Crosby, it will be a challenge to consistently implement the ongoing reform agenda to attract investors, with taxes being one of the main issues faced by businesses.

He supported the government'€™s effort to increase tax revenues and compliance, but insisted that it should maintain competitive tax rates.

'€œUnless the government has a very good idea of a specific industry or opportunity, why not keep the corporate tax relatively competitive? In the region, it would mean 20 percent or less for corporate taxes,'€ he added.

Meanwhile, Deputy Finance Minister Mardiasmo said that the government was currently finalizing various tax schemes aimed at boosting revenues.

In this year alone, it is hoping for Rp 1.49 quadrillion (US$116.22 billion) in tax revenues.

'€œWe are preparing tax incentives and allowances. We are also working to amend some laws at the House of Representatives, including on the KUP [general tax system],'€ he said.

Separately, Coordinating Economic Minister Sofyan Djalil said that the government would roll out other incentives to keep businesses running in Indonesia.

One example, he said, was the incentives provided for shipbuilding industries. '€œSome of the upcoming incentives'€™ frameworks are already there, but we just have to assess the industries'€™ preparedness,'€ he said without providing details.

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