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New Investment Law: Will It Improve Investment

Posted by aswin pada 6 Januari 2009

New Investment Law: Will It Improve Investment


On Thursday, March 29, 2007 Indonesia have a new investment law. The new law will replace the 1967 Foreign Investment Law and the 1968 Domestic Investment Law. The new law ensures that foreign and domestic investors will receive equal treatment. As in the old law, it provides guarantee against nationalization and freedom to repatriate profits. And it adheres to the principles of transparency, openness and accountability.
The new law also has a clause on Dispute Settlement. And to ensure the equity objectives, the law provide for fiscal and non-fiscal incentives to promote partnership between big business and Small and Medium Enterprises (SMEs). The law will provide facilities for those investing in remote areas and able to employ more workers, to enjoy land title, import license, and special fiscal rights.

The new investment law tried to accommodate many things, such as labour protection, Small and Medium Enterprises (SMEs) needs, and environmental protection. People said that, it’s the downside of the new law. Moreover, some of the article is considered inconsistent, for example: article 20 that ruled different thing to article 5, in article 5, it is said that foreign investment should be in local firm but article 20 opens the chance for foreign investment not to be in local firm (PT).

To attract investor, this new law has a lot facility to be offered to the investor, such as: Land titles, fiscal and non-fiscal incentives, and easiness for registration and license.

First, the land titles, Indonesia’s land legislations do not recognize the concept of freehold land rights. Instead, the various rights attached to the land are subdivided into separate titles, which is the Land Cultivation Right (Hak Guna Usaha, abbreviated as HGU), the Right of Building on Land (Hak Guna Bangunan, abbreviated as HGB) and the Right of Use on Land (Hak Pakai, abbreviated as HP). Under the new law, the maximum duration for HGU will be extended to 95 years, HGB to 80 years and HP to 70 years. Before the new law, investor had to deal with the bureaucratic process again, after a relatively short 25-35 years, if they were to seek an extension of their land titles. This not only carried a time cost, but also increased the expense and business uncertainty for investors.

Secondly, are the fiscal and non-fiscal incentives. Under the new law, investor enjoy fiscal and non-fiscal incentives, both foreign and local firms are to enjoy the same incentives, as long as they meet the requirements such as investing in labour intensive industries, infrastructure projects, projects involving transfer of technology, ‘pioneering’ industries, projects investing in rural areas, or projects that team up with SMEs. Foreign firms will also be protected against nationalization by the government, except where corporate crime is involved. Disputes between the government and investors can now be arbitrated using international laws.

Third, the new law provides one-stop licensing and service center at the BKPM, which is now shall directly responsible to the president instead the minister of trade. This will shorten the procedures, and the costs, of setting-up business in Indonesia. With simplified procedures, the government hopes to process investment applications in 30 days, compared to 90 days, currently.

Fourth, in addition, is the Negative Investment List. It’s a list of sectors/ industries which are open or open with certain conditions for foreign and domestic investors or prohibits/bans foreign participation. This list will ensure that investors will know which industries are open to investment. The Negative Investment list is still under discussion, but the government has promised to slash the list, with the aim of developing the industrial sector in the long run.

For that reason, I’m sure the new law will help investment to come. Actually, to invite investor so they will invest their money in Indonesia, we need more than just a new investment law, but some steps forward are better than none, and the new investment law is still a good start. The new law is a fundamental support for the economy. What the government should do next is to synchronize the regulation so there will be no conflict or overlapping between regulations. Beside the regulation, the government should create politic stability, law enforcement and nation security. Investor won’t invest their money if they aren’t sure that their investment will be safe from riots or war or anything else that endangered their investment.



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