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.