investment to indonesia is not yet conducive

The World Bank assessed that the business climate in Indonesia is not yet conducive. This issue was illustrated by a number of indicators among others the long-winding procedures to start a business, the high costs to start a business and to obtain permits, the high costs to determine contracts and the high tax expenses. The World Bank clarified on the facts which become obstacles in investing in Indonesia during an international workshop entitled Improving Indonesia’s Investment Climate in Jakarta on Wednesday (16/11). The evaluation referred to a Doing Business 2006 survey conducted by the institution towards 155 countries. Meanwhile, Chief Economist of the World Bank for East Asia and Pacific Region Homi Kharas also explained that the primary obstacles of the investment climate in Indonesia are related to among others macro instability, corruption, electricity and tax regulations and administration.

In the report by the World Bank, entrepreneurs need 151 days to start a business in Indonesia and must go through 12 procedures. This position is the second worst among the 26 countries set as examples by the World Bank. While expenses that must be paid reach 101.7% of the revenue per capita. In this matter, Indonesia is the third lowest after Cambodia (276.1%) and Timor Lester (125.4%). To obtain permits in Indonesia, entrepreneurs must take 224 days with expenses of 364.9% of the revenue per capita, and they have to go through 19 procedures.

The World Bank stated that the long permit procedures in numerous countries are frequently related to corruption, especially in developing countries. Bribery has the potential to take place in every phase of the procedures. Based on empirical analysis, such may in fact encourage investors to withdraw, burden the expenses to the consumers or corrupt on oil-based fuel (BBM).

Another finding by the World Bank is that Indonesia is in the top position with regards costs to lay off employees, which reach 145 times a weekly salary. The second position is placed by Vietnam with lay off costs reaching 98 times a weekly salary. The non-conduciveness of the investment climate is also seen in the property registration procedure, one of the important elements of investment. In Indonesia, expenses to register properties reach 11% of the property’s value. This position is the second best after Fiji, tariff of which is 12% of the property’s value.

In the establishment of contract issues, Indonesia is also considered low compared to many other countries. According to the World Bank, the time needed to establish contracts in Indonesia reaches 570 days (the second longest) with costs 126.5% of the value of the debt (the third most costly). Another finding considered to burden the entrepreneurs is the taxes. The survey by the World Bank discovered that entrepreneurs must pay taxes amounting to 38.8% of gross profit, with time needed to pay the tax approaching 560 hours annually.

Uncertainty
Meanwhile, World Bank’s economist Homi Karas mentioned that in the issue concerning obstacles in the investment climate, Indonesia’s condition is only better than Cambodia and worse than China, the Philippines and Malaysia. Homi utilized seven indicators to measure among others macro instability, policy uncertainty, corruption, electricity and tax regulations and administration. Homi also stated that the level of the companies that believe regulations in Indonesia are hard to predict is very high, reaching almost 60%. This rate is the highest compared to the Philippines, China and Cambodia.

When asked regarding what strategy the Government of Indonesia needs to implement to improve a conducive investment climate, Homi confirmed that the Government needs to prioritize the demands of the investors. Especially concerning taxation, permit, law certainty, business certainty, infrastructure availability and manpower system. “Until now such factors have become obstacles in competing with countries such as China, Thailand, Malaysia and Vietnam,” he stated.

In the eyes of the investors, Homi stated, Indonesia has not yet become a favorite country compared to other regions in Asia. He evaluated that compared to other countries such as China, Malaysia and Thailand, Indonesia’s levels of law certainty, permit, taxation and manpower system are still far behind. Homi acknowledged that during the last year the volume of investment in this country has experienced a quite significant improvement, thus it could experience a double-digit growth. However, Homi continued, the Government is obligated to conduct reform in various sectors related to investment and to consistently fight against corruption.

Meanwhile, the Vice President Jusuf Kalla when opening the workshop stated that revitalization of the investment climate is highly important as a part of increasing Indonesia’s economic growth from around 6% to become 7% annually, decreasing unemployment and improving the welfare of the people.

“There were so many obstacles in 2005, such as subsidy and debts that must be paid. 2006 shall be far better in the investment and infrastructure development aspects,” stated Kalla. He mentioned that observed from the political and external factors, Indonesia is growing to become more conducive. The Government is also simplifying and deregulating regulations related to procedures in obtaining permit, customs and taxation.

”It needs 800 days to process an electricity project. I demand that this should be completed within one year only,” he confirmed. Kalla understands difficulties experienced by the investors in investing in Indonesia. “However, that is the art of it, high risk high gain, no risk no gain,” he joked. He asked that all parties to be more optimistic towards the efforts conducted by the Government.

Tax Draft Bill
This workshop also observed the Tax Draft Bill. According to the General Chairman of the Association of Indonesian Entrepreneurs (Apindo) Sofjan Wanandi, the Tax Draft Bill and Manpower Draft Bill package must be finalized by 2006 to accelerate incoming investment. Sofjan expects the Tax Draft Bill to be able to eliminate the gray area that opens up ways for tax apparatus to conduct fraud. Especially the Draft Bill regarding the Tax General Stipulations (KUP) related to tax administrative regulations.

Other than that, the Manpower Draft Bill also needs improvement, including the compensation regulation for laid off employees. Lead Economist of the World Bank Qimiao Fan added that the improvement of the Tax Draft Bill needs to be implemented along with the Government’s political commitment and a dialogue among entrepreneurs. “The problem is not in the tax tariff, but in the uncertainty concerning regulations and administration of the tax which add to expenses,” explained Fan to Investor Daily.