Indonesia's Parliament to debate omnibus legislation to boost the economy

Labourers at a protest outside Indonesia's Parliament building in Jakarta on Jan 20, 2020. Two Bills being proposed aims to streamline investment rules, provide greater ease for doing business and make labour laws friendlier and more amenable to investors. PHOTO: REUTERS

JAKARTA - Indonesia's Parliament looks set to debate two Bills aimed at streamlining investment rules, providing greater ease for doing business and making labour laws friendlier and more amenable to investors.

The Bills, outlined in a government paper seen by The Straits Times, are part of a move by the government to boost investment and create more jobs in South-east Asia's largest economy amid a global slowdown.

Thewide-ranging job creation Bill includes allowing employers to hire and fire with reasonable severance pay, and to recruit someone on the basis of flexible working hours.

Companies in labour-intensive industries will for the first time be exempted from having to comply with the tight minimum wage regulation.

Another Bill, which relates to taxation, revises the current arrangements for corporate as well as individual income tax and value added tax, among others.

The Bill will reduce corporate tax gradually from the current 25 per cent to 20 per cent by 2023. It also stipulates scrapping the dividend tax for some companies but introduces a tax on the revenue earned in Indonesia by foreign technology companies, regardless of whether they have a locally incorporated business unit.

The two Bills are part of three omnibus Bills proposed by the government, with the third relating to plans to move the administrative capital from Jakarta to East Kalimantan.

The government is expected to submit the new legislation to Parliament from next week, Deputy House Speaker Sufmi Dasco Ahmad told reporters on Wednesday (Jan 22).

Investors have pinned their hopes on the job creation omnibus Bill, which is expected to curb regulatory uncertainties that have long hampered investment in Indonesia, economist Satria Sambijantoro told The Straits Times.

Greater investment inflows and exports would help the government's ongoing efforts to tackle a widening current account deficit, which hit US$31.1 billion (S$42 billion) in 2018, caused by rising fuel imports among other things.

"If the Bill is passed into law, we could expect strong FDI (foreign direct investment) and portfolio to flow into Indonesia, propelling investments and growth," said Mr Satria of Jakarta-based stock brokerage firm Bahana Sekuritas.

He noted, however, that the process of getting the Bills to be passed would be "far from (being) straightforward" because of the complexity of the problems and diverse interest groups that would be negatively affected by the wide-ranging changes proposed.

"Given Indonesia's multi-party democracy, the check-and-balance process in Parliament for this omnibus Bill could be more prolonged than what the markets (investors) expect," he said .

Under the current system, a proposed Bill has to go through a process that allows public scrutiny - where academics, civil society and observers are invited to provide feedback, including criticism, before parliamentary committees. Lobbying by interest groups is usually rampant during deliberations.

Indonesia has an active Parliament that from time to time has slowed reforms, although the president can exercise his discretion to issue a government regulation in lieu of law (known by its Indonesian acronym Perppu) if necessary.

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