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Jakarta Post

Indonesian government backpedals on relaxed DNI policy

  • Marchio Irfan Gorbiano

    The Jakarta Post

Jakarta   /   Fri, November 30, 2018   /   09:30 am
Indonesian government backpedals on relaxed DNI policy Visitors using computer in an internet café. (Shutterstock/File)

President Joko “Jokowi” Widodo has decided to heed the call of businesspeople to maintain restriction on foreign investments in several sectors out of concern that liberalizing them may harm small and medium enterprises (SME), an official has said.

Five business sectors, which were set to be freed from partnerships with local SMEs, would be maintained in the upcoming revision on negative investment list (DNI), said Susiwijono, the secretary to Coordinating Economic Minister Darmin Nasution, in Jakarta, on Thursday.

They are postharvest cleaning system for root crops, internet cafés, fabric printing and knitted fabric as well as internet- or postal-based retail trading. 

On the existing DNI list, which is regulated by Presidential Regulation 44/2016, the first four sectors is open to foreign investment but have to partner with local SMEs, while foreign investors are only required to partner with local firms if they want to invest in internet- or postal-based retailers.

“As per the directive from the President, we included [the five sectors] in the [upcoming DNI regulation],” Susiwijono told the press at the Office of the Coordinating Economic Minister.

With the inclusion of the five sectors in the upcoming DNI regulation, only 49 business sectors from the proposed 54 will either have a cap on foreign ownership or be freed from having to obtain recommendations from relevant ministries.

On Wednesday, Jokowi told members of the Indonesian Chamber of Commerce and Industry (Kadin) during a national executive meeting in Surakarta, Central Java, that he would not liberalize the aforementioned sectors.

“I have been contacted by the chairs of Kadin and HIPMI [Indonesian Young Entrepreneur Association] to listen to their complaints,” said Jokowi as quoted by kontan.co.id, adding that he would maintain those sectors on the DNI list as the draft regulation had yet to reach his desk.

Contacted by The Jakarta Post on Thursday, Ikhsan Ingratubun, chairman of the Association of Indonesian Micro, Small and Medium Enterprises (Akumindo), applauded Jokowi’s decision, saying that the move would not only protect the sectors, but also other businesses that were tightly tied to them.

For example, Ikhsan said the move would not only protect the SMEs in the postharvest cleaning system for root crops, but also safeguard other small businesses that manufactured machinery used in this sector.

He added that the SMEs were not allergic to foreign investments as long as the investors partnered with them, arguing that such an arrangement would secure the interests of the SMEs’ at a time when they face increasing competition resulting from the liberalization of certain business sectors.

“[The SMEs’ partnership requirements] will secure the representation of SMEs [in the partnership],” said Ikhsan.

The DNI revision is part of the newly launched 16th economic policy package, along with the expansion of the tax holiday scheme and tax incentives for export proceeds, which was announced on Nov. 16.

The Finance Ministry has issued Finance Ministerial Regulation (PMK) No. 150/2018 on the expanded tax holiday, which now allows 18 business sectors to apply for the incentive. 

The new sectors are the manufacturing industry in agriculture, forestry and plantations as well as the digital economy. 

The new tax holiday grants full exemption from corporate income tax (PPh) for a certain period of time according to the investment value.

In addition, the government also introduced a new incentive for investments of between Rp 100 billion (US$6.97 million) and Rp 500 billion in the eligible sectors, namely a 50 percent corporate income tax cut for a five-year period, also known as a mini-tax holiday.

Bank Central Asia (BCA) chief economist David Sumual said the government’s move was another policy flip-flop as the authorities and other stakeholders were not on the same page. 

He urged the government to create a grand strategy for the local economy’s development and to provide a clear long-term road map. “[The government] should first identify what businesses want to do, and then move forward in devising short, medium and long-term strategies.”

This article was originally published in The Jakarta Post's print edition on Nov. 30, 2018, with the title "Govt backpedals on relaxed DNI policy".