Jakarta's tax cut 'unlikely to affect S'pore'

An Indonesian plan to slash corporate tax from 25 per cent to 17 per cent next year to match Singapore's rate is not expected to have a major impact here, say experts.

Tax specialists and economists in Singapore said the country does not directly compete with Indonesia for foreign investment, so the tax cut will not likely affect businesses.

Ms Selena Ling, OCBC Bank's head of treasury research and strategy, said the two countries' manufacturing profile and competitive edge are very different.

"Overall, the attractiveness of a location for foreign direct investment has to be holistic and tax is just one of the factors for consideration," said Ms Ling.

Deloitte Singapore partner Daniel Ho agreed: "Singapore is more of a hub destination, while companies invest into Indonesia for its market and resources.

"While there may be some impact on manufacturing operations here, this is likely to be limited as the manufacturing operations remaining in Singapore are mainly higher value-added activities that require skilled labour and is not so easily replicated elsewhere."

Mr Chester Wee, an international tax services partner at Ernst & Young Solutions, said Indonesia's tax cut is not likely to have a significant effect on investment.

"Singapore continues to be a choice location for multinationals for high value-added activities such as headquarters activities, research and development, centralised logistics management and procurement activities, and high-tech manufacturing," he said.

PwC Singapore tax partner Abhijit Ghosh said Singapore's position as a premier location for regional headquarters and hubs should not be adversely affected by the tax cut.

"Singapore's focus on building world-class infrastructure, a stable political system, tax treaties and free trade agreements, business friendly ecosystem... will continue to attract future generations of investors," he added.

Indonesian President Joko Widodo said on Tuesday that he plans to cut corporate tax, likely next year, to 17 per cent following consultations.

A version of this article appeared in the print edition of The Straits Times on August 12, 2016, with the headline 'Jakarta's tax cut 'unlikely to affect S'pore''. Print Edition | Subscribe