Country Rankings - Indonesia
Dec 14, 2015 Indonesia: cronyistYou'd probably expect me to issue Indonesia a metaphorical pat on the back for the latest round of tax-cutting measures, this time designed to fire up the country's labor-intensive industries, but I'm not. These so-called economic stimulus measures are a sign that all is not well with South East Asia's largest economy. True, the Government can point to external economic influences for Indonesia's falling growth, particularly the situation in China, the country's largest trading partner, but some of the pain must be being self-inflicted – perhaps, partly as a result of the slow pace of economic reforms and partly because of government mismanagement. Indeed, it is another story that appeared in last week's news that I wish to highlight to support my argument: that of the resignation of Indonesia's top tax man, Sigit Priadi Pramudito. In many senses, poor old Sigit was given something of a Sisyphean task by his political masters. Set a wholly unrealistic tax revenue target by President Widodo, reports suggest that he wasn't the ideal candidate to carry out the job anyway. According to the Jakarta Post, what happened was, Widodo, emboldened by his recent election win, strode confidently into a meeting with senior tax officials at the start of his term and demanded that they bring about a 60 percent increase in tax revenue in 2015. After several intakes of breath, and probably a few howls of protest, the officials regained their senses and began to haggle, and the figure of 30 percent was eventually agreed. However, as if this target wasn't difficult enough to achieve for a seasoned campaigner in the field of tax extraction, Widodo, apparently mistrustful of the senior officials who worked under the former administration, wanted his own man to spearhead the tax department's new thrust. And, according to the Post, connections, as well as qualifications, influenced the choice. Whether Sigit's ability came into the equation is a moot point now, because recent figures revealed that the tax department is hopelessly off target, and the hapless tax chief has paid with his job. A relatively minor ripple in the global political pond you might say, but a worrying one nonetheless for those hoping to see Indonesia develop and succeed economically. It hints at the kind of cronyism and muddled thinking in government that tends to beset emerging nations, despite their leaders' best intentions. Of course, Widodo, a former businessman, won the 2014 election promising to crackdown on corruption and promote economic reform. But they all say that don't they. Well, he hasn't made much progress. The Heritage Foundation's Index of Economic Freedom (in which Indonesia lies 105th and is classed as "mostly unfree") says that corruption remains "endemic" in key institutions of state, including, worryingly, the legislature. Okay, in political terms, Widodo has only just got his feet under the desk. However, the Sigit affair hardly inspires confidence that the Government is able to tackle some fundamental economic problems.
Nov 16, 2015 Indonesia: cutting taxIndonesia has featured quite heavily in the news recently on the tax front, and largely for good reasons; that is to say it has been cutting taxes with much vigor over the past few weeks. Indeed, it's been quite hard to keep up with it all. Since the end of August, the Government has: expanded the scope of the so-called "pioneer" tax holiday scheme; provided tax relief on the interest earned from deposits in local bank accounts for exporters; exempted imported transportation equipment from goods and services tax; exempted certain items to be used in industry from import duties for a period of two years; cut tax for companies revaluing their fixed assets; and, most recently, announced that the range of tax incentives on offer to foreign investors will be expanded again. The Government is also lining up what could be a fairly substantial cut in corporate tax, although it has been rather coy about the scale and the timing of the measure. While all this is probably enough to earn Indonesia an encomium, it does hint that all is not well with the Indonesian economy. Indeed, it is a pattern that is being repeated in other emerging economies in the region, including Thailand, Malaysia, and Vietnam, which have also cut taxes in staccato fashion in recent weeks as they attempt to stimulate their economies. Indeed, the phrase "economic stimulus" is now being used on a regular basis in previously high-growth Asian economies, which have been the backbone of recent global growth, whereas it is more normally associated with the low-growth developed economies of the G8. This doesn't bode well for the world economy. Expanding on this theme, economic growth, or the relative lack of it, isn't the only thing that emerging market economies in the Asia-Pacific region are worrying about. The knock-on effect that lower growth is having on tax revenues is also causing revenue ministers sleepless nights. Indonesia's recent confirmation that a tax amnesty will be staged in 2016 betrays a certain level of desperation on the part of the Government, with tax revenues widely expected to substantially undershoot targets this year; amnesties might provide a short-term boost to tax revenue, but studies suggest they erode tax compliance over the long-term. Malaysia is in a similar position, and has recently sought to shore up its revenue base by introducing a goods and services tax and hiking tax for those on high incomes in the recent budget (remember the so-called "competitive" tax hike?).
Aug 07, 2014 Indonesia: moves the goal postsWhich leads me on to my first execration of the week. Perhaps the cardinal sin that a government can commit in the eyes of foreign investors is breaking legally-binding contracts that set rates of tax and other conditions over fairly long time horizons. They are usually applied in the mineral industry within which companies commit considerable resources in terms of money over time to a particular project. But there has been an alarming rise in recent years of economic nationalism, particularly among the up-and-coming emerging economies, with many governments deciding to move the goalposts halfway through contracts, usually to provide them with a bigger share of the spoils. Yes, the big mining and oil companies aren't the most loved creatures on the planet, and governments claim only to be doing what's right for the people, but such moves set a bad precedent. Indonesia is one such country, and although it recently revised regulations that led to a ban on raw mineral exports allowing one foreign mining firm to resume operations, the damage has already been done in terms of international perceptions of the country among foreign investors. The idea behind the new regulations is to encourage more domestic processing of the minerals unearthed in Indonesia. But surely there must be better ways to do this than the heavy-handed approach applied thus far.
Mar 20, 2014 Indonesia: keeps digging"Hard-Faced International Mining Behemoth Grinds Down 3rd-World Workers." Sounds all too probable, yes? "Corrupt Government Reneges On International Mining Contracts." Sounds even more probable, and there have been lots of cases of that lately. If you don't pay the Ministers then they'll chuck you out; and if you do, you'll end up in Leavenworth. Who'd be a mining executive? Now of course none of the above applies to the saintly mining companies who are helping Indonesia to exploit, sorry, manage, its mineral resources; and of course Indonesian ministers are the cynosure of probity. So how to explain what's going on with Indonesian mining? Presumably the (non-Indonesian) mining companies employ tens of thousands of local workers, and if they are modern, socially responsible companies, no doubt they have an entirely paternalistic attitude towards those workers (no, I am not being sarcastic, it is just how you need to be, nowadays). And not incidentally, they transparently pay vast sums to the government every year through various types of tax. And the Government? It is reasonable to want to trade up, to add value to the resources you have, to increase the skill levels of your citizens, all that good stuff. And why would the mining companies not want to go along? Surely it is in their interest to secure their place in the value chain by having a bigger and more sophisticated stake in the country? So, with all these win-win outcomes, why is it that the mining companies and the Government are at each other's throats? Obviously I am missing something; there must be an obvious answer. But I can't see it. Unless it would be tax? The Government claims that it is not trying to increase its revenues, but to better the country. Well, that's a first! But it does seem strange that their method of encouraging investment is to apply a sort of fiscal Iron Maiden to their biggest taxpayers. Colbert would not have approved: what they're getting is all hiss and no feathers.
Jan 03, 2013 Indonesia: being fair-mindedIf having an independent and accessible judiciary is one of the hallmarks of a welcoming business location, and who will gainsay it? then Indonesia deserves a pat on the back for siding with an Australian company in a transfer pricing case against its own tax authority. I don't know too much about Indonesia, but it seems to have traveled a long way from the authoritarian, crony regime of yester-year, although recent rules about mineral extraction and processing seem counter-productive. I am tempted to mark the country down for all those endlessly repeated ads on Bloomberg, but that would be unfair, wouldn't it? I could always watch CNN or Euronews instead, although at the moment my television will only deliver the latter in Greek, for a reason no technician can understand. And my Greek, is, well, challenged! Anyway, a star for Indonesia, even if one swallow doesn't make a summer, and the legal system in general appears to be quite chauvinistic. It's based on civil law, as you'd expect with Dutch origins.
Jun 21, 2012 Indonesia: may be raking in the cash, but has become arrogant and should stop digging a hole for itself.140m people trying hard to be democratic (small d) and middle class, being let down by their government. That's sad. Indonesia did a good job of ridding itself of autocratic dinosaur Presidents, and has made some moves towards opening up its economy. Until now. Everything is wrong with the scheme to tax mineral exports out of existence, indeed to ban them altogether, in favour of local secondary processing. Companies will flock to Indonesia to set up mineral processing plants if they are offered fair terms; the fact that they don't is a commentary on the corruption and protectionism that are still too rife in the country, and the wrong thing to do is to take a sledgehammer to the problem. All they will do is to break their own feet. Please stop, before it is too late! Indonesia may balance its books this year; but next year?