Jayanty Nada Shofa, Jakarta – The Indonesian government is trying to bring in more investment into the green sector with incentives and less red tape, as the coal-reliant country seeks to transition to renewables.
Indonesia is aiming for 23 percent renewables in its energy mix by 2025. The country has also set a goal to achieve net-zero emissions by 2060 or sooner.
Southeast Asia's biggest country has a large renewable energy potential, which the government reported to reach a whopping 3,686 gigawatt. But for Indonesia, shifting to renewables would be no easy feat. In addition to the heavy coal reliance, energy transition requires substantial investment. The government also projected that it would need $1,108 billion in investment to achieve net zero by 2060.
In November 2020, President Joko "Jokowi" Widodo enacted the Omnibus Law on Job Creation which streamlines Indonesia's complex regulatory environment.
According to the Investment Coordinating Board (BKPM), the Omnibus Law becomes a linchpin to Indonesia's strategy in enticing investors, including those involved in green industries.
"The Omnibus Law provides ease of licensing, as well as 'clean and clear' land. As we know, what mainly prevents investors from investing is land," Saribua Siahaan, BKPM investment promotion director for Southeast Asia, New Zealand, and the Pacific region told a conference on green investment in Jakarta on Wednesday.
"The Omnibus Law shows that when investing in Indonesia, investors would only need to bring their capital and technology. We will take care of all the permits and we have also streamlined the government administrations," he said.
The government's online submission system – an electronic-based licensing system – will also make it easier for investors to get a permit, according to Saribua.
He also added that Indonesia's green economy had incredible potential. "The government is thinking of making a system so that investors in this [green] sector truly care about their environmental impact," Saribua said.
Tax holiday and import duty exemption
There are currently several incentives available for investors in the renewable energy sector: namely tax holidays, tax allowance, and import duty facilities.
The government may grant investors a corporate income tax cut that can reach up to 100 percent for 5-20 years, depending on how much they invest. The investment amount, however, has to be at least Rp 500 billion (about $33.3 million).
There is also a "mini tax holiday" for those investing Rp 100 billion to Rp 499 billion. Under this scheme, investors can get a corporate income tax cut of up to 50 percent for five years.
For tax allowance, investors can have their corporate net income tax deducted by 30 percent of their total investment – prorated at 5 percent over the course of six years.
They also get to enjoy a two-year import duty exemption when importing their raw materials.
The import duty exemption can go up to four years if the company uses machines with a minimum of 30 percent local content.
Last week, President Joko "Jokowi" Widodo issued a presidential regulation aimed to give an impetus for renewable energy development in the country.
"Hopefully, this new regulation can encourage ministries and government agencies support," Andriah Feby Misna, the director of various new and renewable energy at the Mineral Resources Ministry, told the same conference.
"Such as by providing fiscal and non-fiscal incentives, ease of licensing for renewable energy development, and ensuring the industrial local content," she said.
Investment in renewable energy
In 2021, Indonesia's investment realization in the energy sector reached $28.2 billion, of which only $1.4 billion came from the renewables sub-sector. Oil and gas accounted for most of last year's energy sector investment realization, amounting to $15.9 billion, data showed.
This year, the government is aiming for $32.6 billion in realized energy sector investment. About $3 billion will come from investments in renewables.
The "Green Investment Potential and Designing an Attractive Incentive" is hosted by business magazine Majalah Investor in partnership with the BKPM.