Indonesia exempting tax to lure investment

Indonesia's government plans to exempt corporate dividends that are being reinvested in Indonesia from being taxed, as part of the country's efforts to encourage more foreign investment in the country.

“The incentive is aimed at encouraging foreign investors to reinvest their profits [in Indonesia] and not to take them home,” Mahendra Siregar, chairman of Investment Coordinating Board (BKPM) said on Thursday. “We don't want investors to become confused or see it as negative and inconsistent.”

Attracting more foreign investment was part of the country's efforts to bring economic growth back to the 6.5-7 % level from this year's projected growth of between 5.7 and 5.8 %. Indonesia booked a record $33 billion in investment last year. The number is estimated to increase by 15% this year as more sectors are opened up for foreign investment.

Mahendra said that investments made up 33% of Indonesia's gross domestic product last year, up from about 25% five years ago. In order to achieve economic growth of 6.5 -7%, Indonesia needs to push investment contribution up, to 40%of GDP.

Finance Minister M. Chatib Basri said Indonesia would grow below 6% in 2013 and 2014, due to the United States' move to taper its monetary stimulus and economic growth in industrialized nations being low, which could disrupt investment in emerging markets including Indonesia's.

Lippo Group executive director John Riady also stressed the need for regulators to improve policies and regulations to ensure legal certainties.

“Foreigners are not affected by the fact that the rupiah has depreciated by 26% over the past year and that the domestic share prices were experiencing corrections because they knew that the market was overreacting,” John said.

“They still believe that the investment prospects in Indonesia are good.”