Indonesia - Investment
President Yudhoyono and his economic ministers have stated repeatedly their intention to improve the climate for private sector investment to raise the level of GDP growth and reduce unemployment. However, in addition to general corruption and legal uncertainty, businesses have cited a number of specific factors that have reduced the competitiveness of Indonesia's investment climate, including: corrupt and inefficient customs services; non-transparent and arbitrary tax administration; inflexible labor markets that have reduced Indonesia's advantage in labor-intensive manufacturing; increasing infrastructure bottlenecks; and uncompetitive investment laws and regulations. In each of the past three years, the Government of Indonesia has announced a series of economic policy packages aimed at stimulating investment and infrastructure improvements and implementing regulatory reform.
A new investment law was enacted in 2007, which contains provisions to restrict the share of foreign ownership in a range of industries. The 2010 iteration of the negative investment list includes long-awaited legal clarifications alongside limited liberalization. The clarifications include a continuous review of closed sectors for increased market access. The decree confirms that investment restrictions do not apply retroactively unless the new provisions are more beneficial to the investor. The changes also clarify that capital investments in publicly listed companies through the stock exchange are not subject to Indonesia's negative list unless an investor is buying a controlling interest.
In 2010, the Overseas Private Investment Corporation (OPIC) updated its 1967 investment support agreement between the United States and Indonesia by adding OPIC products such as direct loans, coinsurance, and reinsurance to the means of OPIC support which U.S. companies may use to invest in Indonesia. Over its 39-year history OPIC had committed more than $2.1 billion in financing and political risk insurance to 111 projects in Indonesia. Currently, OPIC is providing more than $75 million in support to seven projects in Indonesia in the energy, manufacturing, and services sectors and is also now supporting several new renewable resources/clean tech investment funds that are privately-managed and can look to invest in commercially-attractive projects in Indonesia.
On September 2, 2008, the DPR passed long-awaited tax reform legislation. The legislation reduced corporate and personal income tax rates as of January 1, 2009. Corporate income tax rates fell from 30% to 28% in 2009 and to 25% in 2010, with additional reductions for small and medium enterprises and publicly listed companies. The legislation raises the taxable income threshold for individuals, cuts the maximum personal income tax from 35% to 30%, and provides lower marginal personal income tax rates across four income categories. Taxes on dividends also fell from a maximum of 20% to a maximum of 10%. Long-planned labor reforms have been delayed.
The passage of a new copyright law in July 2002 and accompanying optical disc regulations in 2004 greatly strengthened Indonesia's intellectual property rights (IPR) regime. Despite the government's significantly expanded efforts to improve enforcement, IPR piracy remains a major concern to U.S. intellectual property holders and foreign investors, particularly in the high-technology sector. In March 2006, President Yudhoyono issued a decree establishing a National Task Force for IPR Violation Prevention. The IPR Task Force was intended to formulate national policy to prevent IPR violations and determine additional resources needed for prevention, as well as to help educate the public through various activities and improve bilateral, regional, and multilateral cooperation to prevent IPR violations. It has yet to fully realize these aims. In 2007, Indonesia was removed from the U.S. Trade Representative's "Priority Watch" list and placed on the "Watch" list. However, Indonesia was raised back to the Priority Watch List in 2009 due to an overall deterioration of the climate for IPR protection and enforcement and some concerns over market access barriers for IP products. There have not been signs of improvement in recent years. Amendments to the copyright and patent laws are scheduled to be discussed by Parliament in 2012.
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