Home Blog Indonesia Economic Recovery 2022: Its Significance in Doing Business Business Licenses | Business Setup | Company Registration | Legal Consultation | Secretarial Services Indonesia Economic Recovery 2022: Its Significance in Doing Business InCorp Editorial Team 4 April 2022 4 minutes reading time Table of Contents Indonesia’s Economy Recovered to Pre-Pandemic Conditions Indonesia Economy Outlook Compared to US and China Sectors That Contribute to Indonesia’s Economic Recovery Indonesia’s Economy Recovered to Pre-Pandemic Conditions The pandemic significantly affected the Indonesian economy. The country sees a negative trend in economic growth for the first time in two decades, making 2020 one of the most challenging years for Indonesia. The full-scale lockdowns and restrictions imposed across the country hampered business at a national level. Responding to this, the government accelerated its spending to boost consumption and demand. Various fiscal policies released by the Indonesian government have helped the economy gradually recover. The Indonesian economy is now on par with other developed countries like the United States, Singapore, and China. Abdurohman, an officer of the Ministry of Finance, revealed that expenditures have once again reached pre-pandemic levels. This means that all the components, including household consumption and investment, have also fully recovered. Despite that, sectors such as transportation and agriculture are only halfway there compared to the rest. Abdurohman further elucidates that a new variant of COVID-19 could potentially disrupt this growth. Thereby, the pattern of economic recovery is highly reliant on the pandemic itself. Indonesia Economy Outlook Compared to US and China An interesting report titled ‘World Economic Outlook Update’ issued in January 2022 by the International Monetary Fund projects that countries such as the United States and China will experience an economic slowdown that will affect the global economic growth as we enter into 2022. The predicted decrease of the United States will happen through a significant reduction in their Gross Domestic Product that will drop from 5.6% in 2021 to 4% in 2022. The factor fueling such changes is the uncertainty of the government’s fiscal policy. This is further made worse by the disruptions that are currently happening in their supply chains. Following the same trend, China’s Gross Domestic Product is also projected to weaken significantly from 8.1% in 2021 to 4.7% in 2022. This prediction relies on the crisis in the housing sector and mobility restrictions. The report also highlights low levels of private consumption that will further lower the country’s economic growth. On the other hand, Indonesia is projected to see exponential growth in its Gross Domestic Product, increasing from 3.3% in 2021 to 5.6% in 2022. Although the report does not explicitly mention the factors that lead to such a boost, the IMF rightly reminds stakeholders to remain aware of economic disruptions due to the spread of potential new variants, energy price volatility, and geopolitical tension. Companies looking to benefit from Indonesia’s steady economic growth can contact Cekindo personnel for help regarding company registration, business licensing, or HR matters and recruitment. Sectors That Contribute to Indonesia’s Economic Recovery Raw Materials Indonesia is set to become the second-largest producer of stainless steel globally. The abundance of raw materials has positively impacted the economic welfare in Indonesia. The Indonesian government has been focused on natural resource management to achieve sustainable growth. Significant investment has been put into education to ensure the proper utilization of natural resources. Energy The Indonesian government has been eager to help the economy recover. Several COVID-19 recovery packages have doubled the already high subsidies to fossil fuels. In addition to this, the Indonesian government has also extended great support for the clean energy sector. This has been done by releasing policies that incentivize renewable energy projects investment. There have been 15 measures taken to support the energy sector, 6 of which are aimed to help fossil fuels and the remaining to sustain clean and renewable energy. Digital Economy Digital adoption continues to expand in Indonesia. However, to continue such contribution to economic growth, there is a need to ensure that talent, competition, and data protection are continually improved. The rapid growth of the digital economy has been good but could potentially become a double-edged sword as competitors have started to stifle, resulting in monopolies. Discussions have also been held regarding consumer protection. Through collaborations between platforms and institutions, businesses will be able to better benefit from the data safety realm, thereby allowing for even more room for growth. Read Full Bio Verified by Daris Salam COO Indonesia at InCorp Indonesia With more than 10 years of expertise in accounting and finance, Daris Salam dedicates his knowledge to consistently improving the performance of InCorp Indonesia and maintaining clients and partnerships. Frequently Asked Questions Are there investment facilities provided for foreign investors in Indonesia? A newly established PMA company in Indonesia is typically provided with import facilities, tax holidays, tax allowances, or investment allowances. Import facilities Investors in Indonesia, particularly in manufacturing, may benefit from import tax exemptions for capital goods and raw materials through the Master List Facility. The imported goods must meet specific criteria, such as not being produced locally or not meeting industry demand despite local production. Tax holiday The government offers CIT reductions of 50% or 100% for 5–20 years for listed pioneer industries, based on investment value. After this period, a CIT reduction of 25% or 50% applies for two fiscal years. Non-listed sectors can also apply by meeting criteria demonstrating pioneer industry status. Pioneer industries are industries that have a wide range of connections, provide additional value and high externalities, introduce new technologies, and have strategic value for the national economy. Tax allowance For companies in certain designated areas or regions, the government may provide the following tax concessions: Net income reduction up to 30% of the amount invested, prorated at 5% annually for six years, on condition that the assets invested are retained for the same duration. Accelerated depreciation and/or amortisation deductions An extension of tax losses carried forward for a maximum of ten years A 10% (or lower if treaty relief is available) withholding tax rate on dividends paid to non-residents The applicant eligible has to meet high-level-criteria for the above tax facilities: High investment value or for export purposes High manpower absorption High level of local content Investment allowance The government offers a reduction in net income of up to 60% of the investment, distributed at 5% annually over six years of commercial production, contingent upon the retention of invested assets for the same duration. To qualify, applicants must meet business line eligibility criteria and employ a minimum of 300 Indonesian workers in the project. Super deduction This facility could be granted to certain businesses, such as: 60% reduction in net income of the amount of tangible fixed assets invested for labor-intensive industries, distributed throughout a certain time frame. Up to 200% reduction in the gross income of the amount spent for human resources development in certain competency activities. Up to 300% reduction in gross income of the amount spent for certain R&D activities in Indonesia. What if my product has been registered under a local distributor, and I decide to transfer the license to my company or another distributor? You can transfer the license if your local distributor agrees to change the product license holder. Can an individual or a business organization be a shareholder in a PMA company, and is there a minimum number required? A limited liability corporation is required by Indonesian company law to have two or more shareholders, who may be either a legal entity or an individual. The foreign investor must find a second shareholder to own shares in the PMA firm for investments that are 100% open, which could be an affiliated party. What is a CV? CV (Commanditaire Vennootschap) is a proprietary business entity that houses several individuals to run a business. Get in touch with us. 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