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Despite considerable macroeconomic improvements, Indonesia
still needs to review its tax system and labor laws if it wants to
compete with other countries in attracting foreign investment, American
businesspeople say.
During a meeting with Industry Minister Fahmi Idris here Friday, the
American businesspeople representing major multinational companies said
the sales tax on luxury goods and uncertainty in labor laws remained
major obstacles to foreign investors doing business in the country.
The businesspeople said the tax and labor problems made Indonesia less
attractive than other Asian countries such as Vietnam.
Speaking to the press following the meeting, Minister Fahmi
acknowledged the American businesspeople's concerns over the high
luxury tax and labor problems.
The businesspeople asked the government during the meeting to review
the luxury tax system, which they said hampered the sale of luxury
goods such as expensive electronics products and cars.
Representatives of major American companies including Ford Motor
Company, General Electric, Freeport McMoran, Coca-Cola Company,
ExxonMobil, McDermot International and Oracle Corporation are currently
visiting Indonesia as part of a trade mission organized by the
U.S.-ASEAN Business Council.
Besides meeting the minister of industry, the delegates also met with
other government officials including Energy and Mineral Resources
Minister Purnomo Yusgiantoro.
Fahmi said his department was coordinating with the Finance Ministry in
reviewing the tax system, particularly the luxury tax.
The government imposes a luxury tax ranging between 10 and 50 percent.
For auto sales, the rate of the luxury tax is 30 percent for a
passenger car with an engine capacity less than 1,500 cc and 40 percent
for autos with a higher engine capacity.
The local automotive industry has asked the government to impose a
luxury tax based on prices rather than the type and engine capacity of
vehicles.
U.S.-ASEAN Business Council president Matthew P. Daley said Indonesia
also needed to change its labor laws to attract more foreign investors.
"Indonesia is known as the country which applies the biggest severance
pay. If you compared the severance pay in Thailand, Vietnam, the
Philippines and even in the U.S., they are far lower than Indonesia's.
You will find in that area, Indonesia is not competitive, especially in
the labor-intensive industry sector," Daley said.
He said the government needed to adopt a national "single window
system", under which all business permits needed by investors are
issued in one place using an electronic system.
He welcomed the government's recent decision to enact a special
regulation on free trade zones as "one approach that has been helpful
for American companies to do business in Indonesia".
Earlier this month, the government issued three government regulations
to make the entire area of Batam island and parts of Bintan and Karimun
islands a free trade zone, in which all import tariffs, value added
taxes, luxury good taxes and excise duties can be eliminated.
The council's director for Indonesian affairs, Christopher Anderson,
said during the five-day visit here, four companies including Ford,
Caterpillar, power company AES Agriverde and International Paper had
indicated their intention to expand their businesses in Indonesia.
There are no details on investment plans.
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