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Indonesia Shuns 30-Year Tax Holiday, Says Other Incentives Exist for Investors; Samsung Electronics is looking to set up operations in Indonesia. Yet the government balks at granting any company a 30-year tax break

Indonesia Shuns 30-Year Tax Holiday, Says Other Incentives Exist for Investors

By Jakarta Globe on 08:07 pm Jun 23, 2014

Samsung Electronics is looking to set up operations in Indonesia. Yet the government balks at granting any company a 30-year tax break. (Reuters Photo/Tobias Schwarz)

Jakarta. Industry Minister M.S. Hidayat said that the government is flexible enough to provide necessary financial incentives to potential investors, but a 30-year tax holiday is out of the question.

“I’ll never advise anyone [in the government] to raise the tax holiday [period] to 30 years,” Hidayat said in Jakarta on Monday. “What I advise is for potential investors to negotiate on business-like [manners].”

Hidayat was responding to a question on reports that Samsung Electronics of South Korea may revisit its plan to open up a smartphone factory in Indonesia. Samsung scrapped plans to set up a factory in Indonesia and opted for Vietnam, where it received a 30-year tax holiday. Indonesia’s longest tax break is 10 years.

The government has a regulation that would exempt investors with at least Rp 1 trillion ($83 million) in investment from paying taxes between 5 and 10 years after the start of operations.

Recently, though, economics minister Chairul Tanjung called representatives of Samsung in Indonesia to talk to their bosses at home to invest in Indonesia. Chairul then promised that he will support Samsung’s investment in Indonesia.

Still, Hidayat said that the government should be flexible with regards to investment in strategic industries like the smartphone business.

“We cannot be rigid,” he said.

The government, Hidayat said, would like Samsung to invest in the country, but the Seoul-based company should not be “playing hard to get.”

“Even if we grant a tax holiday longer than the existing regulation, it will be compensated by benefits and the multiplier effects,” he added.

Budi Darmadi, the ministry’s director general for priorities and advanced-technology industry, said that talks between the government and Samsung’s executives were never terminated. “The response has been positive,” he added.

Budi also said that with regards to the investment plans of smartphone manufacturer Foxconn Technology Group, also known as Hon Hai Precision Industry, the government has done everything that it can to attract the Taiwanese firm.

“They asked for the government to purchase the land for them, which was something we cannot provide. Then we introduced them to local companies as potential partners, but somehow they did not click,” he added.

Attracting investment in expensive consumer goods has been a key priority of the current administration as Indonesia trade balance becomes deficit due to imports of goods like smartphones and luxury cars.

 

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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