MINISTER OF FINANCE STRATEGY TO HOLD THE OUTFLOW OF FOREIGN CAPITAL
Posted on August 21, 2015 on 15:20:39 WIB
The government will offer tax breaks for foreign investors if they reinvest profits in the country, said Finance Minister Bambang Brodjonegoro. The move is expected to reduce the flow of capital out of the country ahead of an interest rate hike United States (US).
Starting this month, the company re-invested dividends in Indonesia will get a reduction of taxable income by 30% within a period of six years, the finance minister said in an interview. Other incentives include the extension of a tax holiday for a number of industries, including the petrochemical sector became the largest recipient of foreign capital.
According to Bambang, the policy is expected to keep foreign capital remained in Indonesia, so that pressing the flow of capital out of the country when the US central bank to raise interest rates this year. Due to the dominance of foreign capital in the national economy, the signs of the rise in US interest rates in 2013, making the exchange rate and the stock market slump.
The policy should also help cut the current account deficit and lift the exchange rate is now at the level of "uncomfortable," she said. Repatriation of dividends is the largest component of outflows of funds in the current account.
Bambang also assess dollars by foreign bond holdings are still too high. Share had reached 40% and is now around 38%. To lower it, the minister said the government will increasingly rely on alternative sources of funding that is not too dependent on rupiah bonds. He claimed the government was in talks with the Asian Development Bank, the World Bank, as well as donor countries like Japan to get a loan.
The government has tried to attract new foreign investment in the manufacturing sector and the export of raw material processing industries. The Ministry of Finance is likely to extend the tax holiday to be at least 15 years for certain sectors - such as petrochemical - of applicable current duration of 10 years. Companies in sectors involved do not need to deposit the income tax during the tax holiday.
Foreign investors own kept waiting for signs of economic strengthening of Indonesia under President Joko Widodo, including in the form of further reforms . The President has made a breakthrough by cutting fuel subsidies last year. Fuel prices are now effectively influenced by the market.
However, amid the weakening rupiah, the government last month raised the price of gasoline that sparked criticism about policies not clear. Pertamina now cover the difference between the price of gasoline at the pump with the price in the international market.
"It is not [the policy] wishy-washy," she said. "If the price of gasoline down next month, we could do some sort of modification and compensate Pertamina," he added.
Bambang said the economic growth target of the proposed Ministry of Finance, which is 5.3% to 5.7% for this year, "still possible" is reached. Achieving that generally will rely on increasing state spending, which became one of the main focus this year. Until now, government expenditure is still low, at less than 20% in the first quarter. Ministry of Public Works is ready to boost spending budget starting this month, he said.
Bambang also intends to improve tax collection system with a target of increasing the acquisition of 30%. Some banks stated target is too high, but the minister said they believed the figure could be achieved.
Source: Wallstreet Journal dated 13 April 2015 2015
