The “Omnibus Law” on jobs creation, ratified in October last year, has introduced significant reforms to Indonesia’s business environment, making this major ASEAN economy an increasingly attractive destination for overseas investors.
At the Chamber’s webinar on 27 April, Slamet Noegroho, Consul for Economic Affairs at the Consulate General of Indonesia, introduced the new law, which simplifies more than 70 laws into one. “This law is intended to remove bureaucratic processes and encourage more investment into the country,”
Riza Buditomo, Partner in Trade and Customs from HHP Law Firm, then gave a more detailed overview of the impact of the law, particularly on trade.
He noted that Indonesia is expected to see an economic rebound this year, partly as a result of growing demand for raw and finished materials from major markets including the United States and China. He added that Indonesia was also poised to benefit from the Regional Comprehensive Economic Partnership, which has cut tariffs and made doing business easier among the signatories.
The Omnibus Law is expected to help this economic growth by making Indonesia a more business-friendly jurisdiction.
One of the most significant changes, Buditomo said, is that it gives authority to the Ministry of Trade to deem trading companies as being “of good reputation” – previously this was solely done by the Customs Office, which is under the Ministry of Finance.
“We don’t know yet how this will be implemented, but it will be very interesting to see how the government will align the two authorities,” he said.
To support the country’s export sector, the law includes a provision that the government will provide support to businesses, including fiscal and non-fiscal incentives, facilities, information on market opportunities, and marketing assistance. However, there is also a “new concept of sanctions” – this reduces the number of warnings that need to be given about violations before the authorities can take action, such as revoking a company’s licence.
“I think this is a check and balance,” Buditomo said. “On one hand, the new law gives a lot of leniency and benefits for businesses, while at the same time balancing this with more stringent sanctions.”
A number of measures in the Omnibus Law are aimed at helping the country’s manufacturing sector. To ensure the availability of materials, the export of raw or supporting materials needed for industry has been prohibited or restricted. There are also incentives for importing raw materials. However, it remains to be seen which industries this will apply to.
The removal of the temporary import status could impact sectors such as the construction industry, which had previously been able to bring in heavy machinery as a temporary import.
There are potential risks ahead with such major changes to the regulatory environment. As Buditomo pointed out, there will inevitably be gaps and teething problems as the country transitions to the new regime.
“There will be guidance from the government on the changes,” he said. “Investors should keep their eyes and ears open for news about the new regulations.”
Rinaldo Aditya, Senior Associate, and Yesi Samosir, Associate in the Employment and Compensation Practice Group, from HHP Law Firm, then discussed some of the employment and labour aspects of the Omnibus Law.
“To provide easier access for foreigners in Indonesia, there are new additional business activities that can qualify for work visas, and a longer maximum stay period for single and multiple entry visas,” Aditya said.
The process of applying for RPTKA, the general work permit for foreigners, has also been streamlined, and foreigners who are shareholders in an Indonesia company are also now exempt from needing this permit.
Samosir explained that foreigners can now also obtain in a work visa for “pre-investment activities” such as conducting field surveys or feasibility studies.