Indonesia lowered taxes on some investments and sweetened land acquisition terms as part of efforts to attract funds for its $34 billion new capital project that’s struggling to take off.
(Bloomberg) — Indonesia lowered taxes on some investments and sweetened land acquisition terms as part of efforts to attract funds for its $34 billion new capital project that’s struggling to take off.
The government will provide up to 100% corporate tax holiday for companies investing at least 10 billion rupiah ($650,745) in the new capital in Borneo, according to a new rule announced March 6. It also exempts individuals working and living in the new city from income tax, among other perks offered for a maximum 30 years.
The rule takes effect immediately, with those investing early eligible for lower-for-longer tax rates. Investors will also enjoy zero property transfer fees and no charge for building worthiness certificates within a limited time.
With less than a year before elections, President Joko Widodo is still aggressively courting private investors to finance 80% of the project that he hopes will elevate Indonesia’s economy, resettle millions of people from rapidly sinking Jakarta, and cement his own legacy. But more than three years after Nusantara was first announced, only a handful of private companies have given concrete commitments.
Investors are concerned about the legal certainty of the project given Jokowi’s term is nearing its end, and that Indonesian courts may order a revision of related regulations, said Bank Permata Chief Economist Josua Pardede. The constitutional court had previously ordered there needed to be changes to Jokowi’s landmark Job Creation Law, a year after it came into effect.
“This legal certainty is more important considering that the investment made in this new capital is very long, more than 30 years into the future,” he said.
Still, this new policy fulfills a promise made over a year ago when the Indonesian parliament passed a new capital law promising fiscal incentives to attract private investment, instead of relying on the state budget and bond issuances. The law also granted the New Capital Authority special powers to give permits, land and non-fiscal incentives for investors, bypassing a lot of government bureaucracy.
Nusantara will be built in five phases, starting with the first one in 2022 through 2024, focusing on government offices and basic infrastructure like roads and power grids. Developers aim to finish developing the new capital by 2045.
–With assistance from Norman Harsono.
(Updates with more detail throughout)
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