JAKARTA: Indonesia will give a tax holiday for investors committing at least 1 trillion rupiah ($117 million) into sectors including metals and energy, an effort to spur record levels of foreign direct investment in Southeast Asia's biggest economy.
The G20 member aims to become a world top ten economy by 2025 through boosting investment, improving infrastructure and developing industries that add value to its position as a leading producer of resources such as tin, palm oil and coal.
Finance Minister Agus Martowardojo said he will issue a regulation later on Monday on the scheme, which will cover base metals, oil refining, petrochemicals, renewable energy, machinery and telecoms equipment.
This will exempt investors from paying taxes for between five and 10 years after their companies start operations, though the duration was still being discussed, he said.
Existing investors that have operated commercially for under one year may also ask for a tax holiday, he added.
"The impact will be huge. It can help us reach our 2011 investment target," said the country's investment chief Gita Wirjawan, referring to a target to get 240 trillion rupiah of investment this year.
Some investors have announced plans to build manufacturing plants in the country but have been waiting for the details of the mooted tax holiday scheme before starting operations.
Planned investments include $6 billion in a joint venture steel plant by South Korea's POSCO , the world's no.3 steelmaker, $4.5 billion by South Korea's Honam Petrochemical Corp for a petrochemical complex, and $8-$9 billion from Kuwait Petroleum Corp to build a new oil refinery.
Foreign direct investment surged 21 percent in the second quarter of 2011 from a year earlier as strong commodity prices attracted investors into the mining sector, even without a tax holiday.
Purbaya Yudhi Sadewa, economist at Danareksa Research Institute in Jakarta, said the tax holiday was a good strategic move for the sectors chosen.
"I don't think we have to question that we're losing money from tax for 5 to 10 years -- if they don't come we still don't get it anyway...On oil refining it could help cut fuel shipments to Indonesia as we haven't build any new refinery since the 1990s," he said.
The former OPEC oil producer's ageing refineries mean it relies on gasoline and diesel imports from neighbor Singapore to meet its growing fuel demand.
Chief economics minister Hatta Rajasa said that the government is also planning this month to revise an existing tax allowance regulation for smaller investments, involving either 50 billion rupiah and 300 workers or 100 billion rupiah and 100 workers.
Martowardojo said if the investors already had this tax allowance they would be exempted from getting the tax holiday.
Analysts warn that the country needs to overhaul and expand its infrastructure in coming years to keep attracting firms.
The government is relying on private investors for two-thirds of its $150 billion infrastructure needs. ' Reuters
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The G20 member aims to become a world top ten economy by 2025 through boosting investment, improving infrastructure and developing industries that add value to its position as a leading producer of resources such as tin, palm oil and coal.
Finance Minister Agus Martowardojo said he will issue a regulation later on Monday on the scheme, which will cover base metals, oil refining, petrochemicals, renewable energy, machinery and telecoms equipment.
This will exempt investors from paying taxes for between five and 10 years after their companies start operations, though the duration was still being discussed, he said.
Existing investors that have operated commercially for under one year may also ask for a tax holiday, he added.
"The impact will be huge. It can help us reach our 2011 investment target," said the country's investment chief Gita Wirjawan, referring to a target to get 240 trillion rupiah of investment this year.
Some investors have announced plans to build manufacturing plants in the country but have been waiting for the details of the mooted tax holiday scheme before starting operations.
Planned investments include $6 billion in a joint venture steel plant by South Korea's POSCO , the world's no.3 steelmaker, $4.5 billion by South Korea's Honam Petrochemical Corp for a petrochemical complex, and $8-$9 billion from Kuwait Petroleum Corp to build a new oil refinery.
Foreign direct investment surged 21 percent in the second quarter of 2011 from a year earlier as strong commodity prices attracted investors into the mining sector, even without a tax holiday.
Purbaya Yudhi Sadewa, economist at Danareksa Research Institute in Jakarta, said the tax holiday was a good strategic move for the sectors chosen.
"I don't think we have to question that we're losing money from tax for 5 to 10 years -- if they don't come we still don't get it anyway...On oil refining it could help cut fuel shipments to Indonesia as we haven't build any new refinery since the 1990s," he said.
The former OPEC oil producer's ageing refineries mean it relies on gasoline and diesel imports from neighbor Singapore to meet its growing fuel demand.
Chief economics minister Hatta Rajasa said that the government is also planning this month to revise an existing tax allowance regulation for smaller investments, involving either 50 billion rupiah and 300 workers or 100 billion rupiah and 100 workers.
Martowardojo said if the investors already had this tax allowance they would be exempted from getting the tax holiday.
Analysts warn that the country needs to overhaul and expand its infrastructure in coming years to keep attracting firms.
The government is relying on private investors for two-thirds of its $150 billion infrastructure needs. ' Reuters
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