Indonesia Gives Tax Breaks to Exporting Manufacturers

Jakarta – The Indonesian government has brought in tax breaks for enterprises exporting a minimum of 30 percent of their production, in line with tax breaks for multinationals re-investing their profits in the nation rather than sending profits and dividends to overseas shareholders. Such firms are not required to meet minimum invested capital or number of employee requirements to qualify for the tax breaks.

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Statistics Indonesia (BPS) reported a positive trade surplus of US$1.13 billion in March 2015, larger than the US$669 million surplus of March 2014. However, the month saw a 9.8 percent drop in exports to US$13.71 billion and a 13.4 percent plunge in imports to US$12.58 billion from February, the sixth consecutive such fall. While the first quarter of 2015 posted a trade surplus of US$2.43 billion, it suffered 11.7 percent fall to US$39.1billion compared to the same quarter last year, mainly caused by lower commodity prices.

The country’s latest measures are expected to benefit its exports and hence improve its related current account balance. The measures may give some support to the rupiah– one of Asia’s worst-performing currencies this year.

The government’s efforts to boost exports have sowed seeds of its rupiah revitalization while curbing capital outflows. 2014 saw a US$26.2 billion current account deficit, equivalent to 2.95 percent of GDP from a US$29.1 billion deficit in the previous year. The central bank of Indonesia targets an amount in the range of 2.8 to 3.0 percent of GDP this year.

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Despite a slowdown in the last quarter of 2014, the first quarter of 2015 hit a record of IDR 124.6 trillion (US$9.6 billion) in total investment, up 16.9 percent quarter-on-quarter. In 2014, both foreign and domestic investment in the country totaled IDR 463.1 trillion (US$37 billion), a 16.2 percent surge year-on-year (YoY). The Indonesia Investment Coordinating Board (BKPM) sets a target of 14 percent YoY increase in total investment this year. The tax incentives on exports are not only a policy tool, they build confidence in the country’s welcoming investment climate.

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