TKDN in Indonesia: Definition, Benefits, and Calculation Methods

TKDN Indonesia stands for Tingkat Komponen Dalam Negeri, which refers to the Domestic Component Level. This strategic policy enhances local industries by requiring businesses to use a certain percentage of domestic components in their products or services.

The initiative seeks to reduce reliance on imports, strengthen local suppliers, and create more job opportunities within the country. This article will explain the benefits of TKDN, the types of businesses it impacts, how to calculate TKDN, and why certification is essential for success in Indonesia.

Understanding the TKDN Policy in Indonesia

TKDN Indonesia requires specific industries to use a minimum amount of local components to sell their products in the country. For example, electronic devices such as smartphones must contain at least 35% local content. 

The policy also extends to the automotive, telecommunication, and renewable energy sectors to spur domestic innovation and growth. Nevertheless, meeting such demands often proves tricky for global firms. Apple, reliant on factories in Vietnam and Thailand, scrambled to change its supply chains according to Indonesian rules.

To address this, Apple has proposed increasing investments in Indonesia, including training local suppliers and setting up new facilities. These efforts show how TKDN pushes businesses to support local industries while highlighting implementation challenges.

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How Does TKDN Benefit Businesses in Indonesia?

Implementing the TKDN Indonesia policy offers numerous advantages for businesses and the national economy. Companies that align with this policy gain access to new opportunities while contributing to Indonesia’s self-reliance and industrial development. Below are some key benefits of TKDN for businesses:

Supports National Economic Development

Implementing TKDN (Tingkat Kandungan Dalam Negeri) is essential for fostering a robust and diversified economy. By promoting the use of local resources and components in various industries, TKDN encourages domestic production, strengthens local businesses, and creates jobs. 

A diversified economic base is vital for reducing dependence on international markets, allowing the economy to withstand and adapt to global economic fluctuations more effectively. As a result, TKDN contributes to long-term financial stability and growth, empowering the nation to manage better the challenges posed by external economic conditions.

Promotes Environmental Sustainability

By prioritizing local resources and decreasing reliance on imported materials, TKDN fosters environmentally friendly production practices. This approach significantly minimizes the carbon emissions from transporting goods over long distances. 

Implementing these practices contributes to sustainable development by promoting efficient resource use and encouraging manufacturers to adopt greener technologies and processes. Ultimately, this strategy aims to create a more resilient and environmentally responsible supply chain.

Reduces Trade Deficits

Boosting domestic production reduces reliance on imports and supports industries focused on exports. This strategy plays a crucial role in enhancing the country’s trade balance.

Creates Opportunities for SMEs 

TKDN facilitates the integration of small and medium-sized enterprises (SMEs) into more extensive supply chains. This inclusion promotes entrepreneurship and fosters innovation within the industry.

Businesses Subject to TKDN Certification

The Indonesian government has set priority sectors for implementing the TKDN policy. These sectors are strategically chosen to enhance domestic industries through local content requirements when procuring goods and services. Below are the prioritized sectors and their required TKDN values:

• Healthcare Equipment Industry: Priority TKDN value is over 60%.
• Agricultural Machinery and Tools Industry: Priority TKDN value is over 43%.
• Oil and Gas Equipment Industry: Priority TKDN value ranges from 24% to 40%.
• National Electrical Equipment Industry: Priority TKDN value is over 40%.
• Power Plant Industry: Priority TKDN value ranges from 30% to 70%.
• Substation Industry: Priority TKDN value ranges from 17% to 65%.

3 Types of TKDN Calculations

Businesses must accurately calculate their local content to comply with the TKDN policy. This calculation involves various aspects of production, including materials, labor, and their combination. Below are the three main types of TKDN calculations:

Material-Based Calculation

• Focuses on the percentage of local raw materials used in the product.
• Example: Steel sourced from local suppliers versus imported steel.

Labor-Based Calculation

• Measures the proportion of local labor involved in the production process.
• Example: Indonesian workers employed versus foreign workers.

Combined Calculation

• Incorporate both material and labor aspects to determine a comprehensive TKDN value.
• Example: A product with 50% local materials and 50% local labor would yield a combined TKDN score.

A Guide to TKDN Calculation

Calculating TKDN involves using a specific formula to determine the percentage of local content in a product or service. This calculation is essential for compliance and certification. Below is the formula and an example presented in a table:

TKDN Formula

TKDN (%) = (Value of Local Content / Total Production Cost) × 100

Example of TKDN Calculation

Component	Cost (IDR)	Local Component (IDR)	Imported Component (IDR)
Materials	500,000,000	300,000,000	200,000,000
Labor	200,000,000	200,000,000	0
Services	100,000,000	50,000,000	50,000,000
Total Production Cost	800,000,000	550,000,000	250,000,000

Calculation: TKDN (%) = (550,000,000 / 800,000,000) × 100 = 68.75%

In this example, the product achieves a TKDN score of 68.75%, which complies with many industry-specific local content requirements in Indonesia.

Why TKDN Certification is Important for Businesses

TKDN certification measures the level of local components in a product or service, showing a company’s commitment to supporting domestic industries. 

The Indonesian government offers several incentives and advantages for businesses that obtain TKDN certification, as outlined by Law No. 3/2014 and updated regulations like Government Regulation No. 29/2018, amended by Government Regulation No. 46/2023. Below are the key reasons why TKDN certification is essential:

Stronger Market Position

• TKDN-certified products are more competitive locally and internationally.
• Certification boosts credibility and attracts customers.

Access to Government Projects

• TKDN certification is required for companies working on government-funded projects.
• Products with at least 40% TKDN and Corporate Benefit Weight (BMP) are prioritized in procurement.

Tax Breaks and Incentives

• Certified businesses may get tax cuts and easier licensing, especially in industries like automotive and electronics.

Regulatory Compliance

• Certification helps businesses follow government rules and avoid penalties like fines or warnings.

Get Your TKDN Certification with InCorp

TKDN Indonesia is an important policy driving the country’s economic growth and self-reliance. By requiring businesses to incorporate local components, the policy promotes domestic industries, reduces reliance on imports, and creates jobs.

If you want to simplify your compliance and obtain TKDN certification, InCorp can assist you. Furthermore, InCorp can also register your product to ensure that your business complies with all requirements and achieves certification.

Fill out the form below to obtain your TKDN certification and improve your market presence.