The Finance Ministry’s Fiscal Policy Agency head, Febrio Kacaribu, said on Monday that the new incentives, in addition to the ones offered in Law No. 2/2020, could make Indonesia’s tax regime more competitive globally.

The jobs law eliminates income tax on dividends earned in Indonesia and on certain income, including dividends earned abroad as long as they are invested in the country. It also introduces 10 percent value-added tax (VAT) on coal and relaxes administrative sanctions and taxes for foreigners with certain expertise.

The provisions in the omnibus law aim to complement several regulations in Law No. 2/2020, which was issued earlier this year to gradually lower the corporate income tax and impose VAT on services and goods sold in Indonesia by global technology companies, among other provisions.

Thirty-six technology companies appointed by the government to collect these taxes had paid Rp 97 billion (US$6.58 million) into the state coffers as of September, according to the tax office.

“However, we need to acknowledge that the tax incentives alone are not enough. They must be followed by reforms in other fields, especially in the context of [business] licenses,” Febrio told reporters in a virtual briefing on Monday.

“The jobs law mostly addresses the simplification of regulations. We hope this year’s reform and [improved] ease of doing business will gradually raise our tax ratio,” he added.

The government forecast the tax-to-GDP ratio to reach 8.57 percent this year as the country grapples with an economic downturn caused by the COVID-19 pandemic. The figure would be lower than last year’s rate of 12.2 percent.

The government expects the omnibus law, which altered more than 79 previous laws and eliminated thousands of provisions, to boost investment and create jobs in the country. The law regulates a wide range of processes and institutions, from labor and business licensing to education and the sovereign wealth fund.

The legislation, however, has been met with strong opposition from labor unions, environmental groups and students, who have taken to the streets nationwide in protest at the lack of transparency in the law’s deliberations and some articles that threaten labor rights and the environment.

The House of Representatives has not released any official text of the law since it was passed on Oct. 5 but several draft versions have been circulating among the public.

“We put this tax policy in place to boost economic activities, provide fairness and legal certainty and encourage compliance. That is an overview of our instrument for reform,” said Taxation Director General Suryo Utomo in the briefing.

Deputy Finance Minister Suahasil Nazara said the tax reform was necessary as it would simplify the tax administration, increase compliance and improve regulations, information technology and human resources.

“We need to find the right balance for the tax policy in the context of collecting revenue and boosting investment,” he said.

“These are the two reforms that we will seek to carry out in 2020 through various regulations, both with regulations that were issued earlier this year and with ones that are still being finalized, including the inseparable Job Creation Law.”

With the COVID-19 pandemic battering the economy, the government collected Rp 676.9 trillion in tax revenue as of August, marking a fall of 15.6 percent year-on-year.

“In the short run, these policies tend to reduce the government’s revenue,” Bank Permata economist Josua Pardede said on Monday.

“However, as the investment grows following these incentives, the government’s revenue will potentially increase in the long run,” he said.

Bawono Kristiaji, a partner at Danny Darussalam Tax Center, was not expecting the jobs law to lower tax revenue, especially in the long run.

“This law is directed toward providing legal certainty and [improving] ease of doing business so it can expand the tax base in the future,” he told The Jakarta Post via text message on Monday.

“The Jobs Creation Law clearly needs to be complemented with a comprehensive tax reform.”