Jakarta offers tax perks to boost asset revaluation, Reit creation

JAKARTA • Indonesia yesterday announced tax incentives aimed at getting companies to revalue their fixed assets and to create real estate investment trusts (Reits).

The moves are the latest in a series of policy changes the government has been rolling out since last month in a bid to spur economic growth, which has sagged to the lowest level in six years.

Earlier measures announced by President Joko Widodo's administration included lowering energy prices, cutting red tape for investors and setting a new way to calculate annual minimum wage increases.

Under Indonesian rules, companies that revalue fixed assets pay a 10 per cent tax on the amount of the increase. Many state and private companies have kept their level of fixed assets constant for years, meaning little tax has been paid on revaluations.

Effective immediately, the Finance Ministry said companies that submit proposals for fixed asset revaluation before Dec 31 will pay only 3 per cent tax on the increased amount.

Mr Yustinus Prastowo, an analyst at Centre for Indonesia Taxation Analysis, said the incentive would make it cheaper for firms to revaluate assets if they want to go public or issue debts. "But to get corporates to do that, it needs more than just incentives. There need to be conducive conditions in the stock market," he said.

The government is also encouraging the setting up of Reits by removing double taxation that may apply to such businesses.

Coordinating Minister for Economics Darmin Nasution said many Indonesians invest in Reits in Singapore, which in turn invest in Indonesian property assets.

Finance Minister Bambang Brodjonegoro said the government will impose a single tax for Reit business, removing both dividend taxes and one on property sales. "We hope to attract back to Indonesia the offshore money invested in Reits," he said.

Indonesia also announced it is seeking more funds from China to help drive economic growth after foreign investment stagnated in the last quarter. Foreign direct investment (FDI) was US$7.4 billion (S$10.3 billion) from July to September, unchanged from the previous quarter and down from US$7.5 billion a year earlier, according to the Indonesia Investment Coordinating Board.

In rupiah, it rose 18 per cent from a year earlier. Total investment, including from domestic sources, climbed 17 per cent in rupiah terms from a year earlier, and the government expects to exceed its full-year target of 519.5 trillion rupiah (S$53.1 billion), it said.

Mr Widodo reshuffled his Cabinet and issued a series of policy measures in recent months to try to remove impediments to doing business, after South-east Asia's largest economy grew in the second quarter at its slowest pace since 2009.

Budget spending has picked up in recent months, after a slow start to the year, with the government kick-starting infrastructure projects such as a Chinese-built dam.

"We need to tap more Chinese FDI," Mr Brodjonegoro told an audience of diplomats, economists and business people at a World Bank briefing yesterday. "In the past, the relationship was mostly trade. Not so much on FDI. Chinese FDI realisation is one of the lowest."

China has offered US$100 billion of total investments in various projects, the government has said.

Yet, the realisation rate of Chinese investment is only at 10 per cent, Mr Brodjonegoro said.

Singapore, Japan and the Netherlands were the biggest sources of investment in the last quarter, with China fifth, the investment board said, without giving details on companies.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on October 23, 2015, with the headline 'Jakarta offers tax perks to boost asset revaluation, Reit creation'. Print Edition | Subscribe