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Jakarta Post

Jobs law to ease recruitment, offer tax break for foreign workers

  • Made Anthony Iswara
    Made Anthony Iswara

    The Jakarta Post

Jakarta   /   Mon, October 26, 2020   /   05:20 pm
Jobs law to ease recruitment, offer tax break for foreign workers A nurse of Bahteramas Hospital is seen wearing safety gear in a special isolation room for patients infected with the novel coronavirus in Kendari, Southeast Sulawesi, on Jan. 28. Given the large number of foreign workers from China working at nickel refining plants in several districts in the province, the hospital has prepared five rooms to anticipate the spread of the virus. (Antara/Jojon)

Business consultancy owner John, 55, who is from the United States but has been running his business in Indonesia for the past 10 years, has said he would consider employing foreign workers if his business grows. However, he said that employing foreigners in Indonesia was a relatively unattractive option given its high cost barriers.

Apart from it being more expensive to pay for their services, the vast administrative procedures to follow, reports to submit and licenses to secure for entering, staying and working in Indonesia have made the overall experience just that much more complicated.

Therefore, it would be useful to streamline the process and make it more convenient for businesses to hire foreigners, especially when it comes to foreign investors, he said.

“You can’t attract foreign investment if you don’t allow the foreign investor to send in trusted and experienced business managers to oversee their investments,” said John, who requested not to use his full name.

Indonesia, keen to attract more foreign investment by loosening the screws on labor limitations, is happy to allow business owners like John bring in more foreigners to work in the country. But the perceived negative sentiment against foreign labor and decades-old legal barriers have limited the scope of investment in this space – a problem the government seems intent on solving with the Job Creation Law.

Read also: Omnibus law to address foreign workers, working hours

Hadi Subhan, a labor issues expert from Airlangga University in Surabaya, East Java, said the jobs law looked to ease existing restrictions on employers hiring foreigners, by only requiring them to submit their expatriate employment plans (RPTKA).

Previous regulations required employers to submit both their RPTKA and an expatriate employment permit (IMTA) in order to be able to hire foreigners.

"De-bureaucratization will impact investors' willingness to sink funds into Indonesia, as they would not only be able to put in their money but also bring in workers [of a certain expertise level]," Hadi told The Jakarta Post on Tuesday.

He also noted the tax break stipulated in Article 111 of the law – in one of the latest iterations of the elusive text that is still circulating unofficially – would further incentivize foreigners to work in the country. The article stipulates that foreign workers with “certain skills” can have their income tax waived for four years from the moment they are subjected to the local tax system.

The new provision does not harm the local workforce, at least not indirectly, Hadi suggested, unlike the severance pay revisions in the law that apply to every worker. Besides, the number of foreign workers is still relatively small when compared to the national workforce, he added.

Read also: Indonesia passes jobs bill as recession looms

Indonesia currently has close to 100,000 foreign workers, according to Manpower Ministry data quoted in an interview with Kontan in May. More than 35 percent of that figure originates from China. The number is relatively small compared with the nearly 138 million people in the national workforce as of February 2020, BPS data show.

However, the presence of foreign workers is not always readily accepted, with some sections of the population still wary that jobs could be taken away from them.

One recent case involved some 500 Chinese workers who were granted entry in June this year to work on nickel smelter projects in South Konawe regency, Southeast Sulawesi, which sparked demonstrations from local residents incensed about the employment of foreign workers at a time when many of their own had been laid off because of the COVID-19 pandemic.

Read also: Govt defends employing foreigners for 'strategic projects' as locals protest arrival of Chinese workers

Similar sentiments were expressed on Oct. 9 by the Confederation of Indonesian Trade Unions (KSPI), which criticized the government for removing permit requirements for employing foreigners in the new jobs law.

“It’s obvious that this will ease [efforts to] bring in foreign workers. Not to mention that, in practice, many unskilled foreign workers will still enter the country,” the union wrote in a press release.

The government has denied that it is rolling out the red carpet for foreign workers.

Manpower Minister Ida Fauziyah said on Oct. 8 in a virtual press conference that the Job Creation law allowed foreign workers to be employed in Indonesia only in a “certain work relationship for a certain position for a certain time”. Foreign workers must also have competencies that fit the job description.

“So not all positions can be occupied by foreign workers,” Ida insisted, while dismissing claims that the law provided some leeway for foreigners.

The minister stressed that every employer would still need to submit the RPTKA plans that are subject to review by the central government. "Individual employers" are also [prohibited from employing foreign workers, she added.

Amid heated debate over a law that has yet to be made publicly available for scrutiny, Malaysian national Sean Ng, who works in the marketing division of a gaming company in Indonesia, said it was still unclear what was meant by the “certain skills” that qualify for an income tax break.

However, Ng supported having simpler laws; he said he had to spend three to four months to secure his temporary stay permit or KITAS, which in turn could imply that it may take much longer to obtain a permanent stay permit or KITAP that can be used as the basis for in-country employment.

Ng said that there needed to be a “sweet spot” between balancing the number of foreigners and local workers required. “Different ideas and a variety of points of view are good, but it shouldn’t be too much [that] it would reduce opportunities for locals,” he said.

As a business owner himself, John said that the removal of the IMTA permit would save companies from having to pay a small fee. But the tax incentive would not affect foreigners who are already being taxed internationally by their home country.

“The important thing is that the regulation [...] needs to be implemented in a time frame that is very well communicated and that [existing] foreign workers and any potential [candidates] will have some confidence that the new regulatory structure will persist for a long period of time,” he said.