Dion Bisara & Novy Lumanauw, Jakarta – The government is prioritizing revisions to the corporate income tax law, seeking to cut the tax rate from 25 percent to 20 percent to attract more investment, Finance Minister Sri Mulyani Indrawati said on Wednesday.
"We're working out how quick [this new policy] can be implemented and how much it will impact fiscal risks," Sri Mulyani said, as quoted by CNN Indonesia.
The minister made the comment after President Joko "Jokowi" Widodo, raising his voice in a rare moment in front of his ministers in a cabinet meeting on Wednesday, expressed his disappointment with Indonesia's woeful investment performance in recent years.
"All the [new] investment policy and licensing, they've brought no results whatsoever. Nothing has happened in my opinion," he said.
Foreign direct investment dropped 11 percent from a year ago to $7.2 billion in the first quarter this year.
While there was political uncertainty ahead of the elections in April, some believe more fundamental forces also played a part in the decline.
Indonesia has one of the highest corporate tax rates in Southeast Asia. Businesses say the high tax has hampered the country's ability to attract investments leaving China amid a continuing trade war with the United States and rising wages in the mainland.
The government in recent years has offered tax breaks for investments in certain sectors, including food and beverages, textiles, automotive, chemicals and electronics, but few have signed up for them.
Sri Mulyani said Jokowi has ordered his ministers to ensure the tax incentives are easy to implement in the field.
Jokowi met with businesses last week to pledge his commitment to boost investment and exports.
In the meeting, Hariyadi Sukamdani, the chairman of the Indonesian Employers Association, said the government needs to prioritize tax cuts and revisions to the labor law – to make it less constraining for employers.
"What we are seeing right now is that labor-intensive businesses are moving out to neighboring countries like Vietnam, Myanmar, Bangladesh, Sri Lanka, Cambodia and Laos," Hariyadi said.