Economy: As a further effort to lessen the economic impact of Covid-19 pandemic, the Indonesian government issued Regulation 23 of 2020 (Reg 23/2020) on the implementation of the National Economic Recovery (NER) program. The program, estimated to cost Rp641.17 trillion or around US$43 billion, is an expansion of the incentives in the stimulus packages launched in February and March 2020. The NER comprises of tax breaks, capital injections for state-owned enterprises (SOEs), interest subsidies for micro, small, and medium-sized (MSMEs) enterprises, liquidity support for the banking industry, as well as financial assistance for vulnerable households, among others. With the introduction of the NER, the budget deficit would boost to 6.27 percent of GDP, much higher than the anticipated 5.07 percent of GDP.
Under the new regulation, the government allocates Rp123 trillion (US$8.3 billion) in tax incentives for more industries. This includes reducing the rates of corporate income tax from 25 percent to 22 percent for the 2020-2021 tax year. This will be further reduced to 20 percent for the 2022 tax year. Employees earning below 200 million rupiah (US$13,000) working in certain sectors will be exempted from paying income tax. These sectors are: Agriculture, forestry, fisheries; Mining and quarrying; Processing industry; Electricity, gas, steam, and cold air suppliers; Water management, wastewater, waste recycling, and remediation activities; Construction; Wholesale, retail, repair, car, and motorcycle maintenance; Freight and warehousing; Hotels and accommodation providers, F&B; Information and communication; Financial activities and insurance; Real estate; Professional scientific and technical services; Rental activities, warehouse rental business, employment, travel agents and other business support; Education; Human health and social activities; Tourism, arts, entertainment, and recreation industry; and A company whose activities are located in special bonded zones.
Trade: Australian vegetable exporters will expand to Indonesia, thanks to the Indonesia-Australia Comprehensive Economic Partnership Agreement (IA-CEPA). According to industry association AUSVEG, the IA-CEPA will help Australian vegetable exporters trade into the growing Indonesian market. The trade will commence on 5 July and will create the framework for “a new era of closer economic engagement” between the two countries, providing more opportunities for Australia’s fresh vegetable exporters. AUSVEG said that despite the current economic climate, demand for Australian fresh vegetables in export markets has remained strong, with the new agreement expected to mutually benefit both nations. The agreement to increase import quotas and decrease tariffs for carrot and potato exports – two of the Australian vegetable industry’s key export crops – should lead to an immediate increase in the trade of over A$15 million in annual trade, an increase of over 300 per cent in current trade values of fresh vegetables to Indonesia.
The IA-CEPA is an important trade agreement that aligns closely with Australian industry’s expanded activities in market development. It includes Indonesia’s continued participation in the AUSVEG Reverse Trade Mission that allows buyers from key export markets to visit Australian vegetable growers and see first-hand the high-quality produce for which our growers are renowned around the world. In 2019, Australia’s global fresh vegetable exports were valued at AS$299 million and in the 2018/19 financial year, Australian vegetable exports to Indonesia were valued at A$5 million. Potatoes accounted for more than 40 per cent of this total. The IA-CEPA is expected to increase import quota to 5000 tonnes of carrots and 10,000 tonnes of potatoes per year. The quota is expected to grow to 10,000 tonnes per year after 10 years for carrots, and 12,500 tonnes per year after five years for potatoes, with a decreasing tariff schedule during this time.
Fiscal: Indonesia will start collecting 10 percent value-added tax on over the top digital services from abroad on 1 July 2020, potentially adding the bills of local customers of movie streaming service Netflix, game distribution Steam, music streaming Spotify and many others, according to the latest regulation from the Finance Ministry. “Under this regulation, digital products such as streaming music subscriptions, streaming films, digital applications, and games, as well as online services from abroad will be treated in a level playing field as other local products that have been subject to VAT,” the ministry’s Directorate General of Taxes said in a statement on Friday. According to the regulation, digital business with the number of transactions or number of traffics in a year exceeded a certain threshold, should collect the tax from the customers, and pay the amount collected to the government every month. The tax office would later determine the threshold and decide which companies or digital services that must collect the tax for the government.
With more than 175 million active internet users, Indonesia has grown to become a key market for the digital economy in the region. However, lack of regulations had constrained government in the past in tapping the sector. The Finance Ministry has been drawing the plan for several months now, but the Covid-19 pandemic has brought forward the urgency to implement the measure sooner than planned. “In addition to creating equality between [local and oversea] businesses, collecting the value-added tax on digital products from abroad are also expected to increase state revenue, which currently is a critical source of funding for mitigating Covid-19 economic impact,” the tax office said.
Industry: Car sales in Indonesia slashed 90.6% in April 2020 from a year earlier due to measures to contain the Covid-19 pandemic, according to the data of Indonesia’s motor vehicle industry association (Gaikindo). A total of 7,871 cars were sold in April, down from 84,056 units sold in the same month last year. The drop accelerated from 15% in March, the data showed. Dealers still managed to sell some 24,000 vehicles to consumers in April, despite large-scale social restrictions imposed in some of Indonesia’s biggest cities.
Gaikindo expects to see 600,000 units sold to the domestic market this year, down from a pre-Covid-19 pandemic projection of 1.1 million. Indonesia’s industry ministry last month said total car sales this year for both domestic and export markets would suffer a 50 percent contraction. Indonesia’s car market is dominated by Japanese brands, with Toyota and Daihatsu usually leading sales. Based on breakdowns of April sales, they remained market leaders, but were also among those suffering the biggest drop in sales. Astra International, which distributes both brands in Indonesia, sold 2,093 Toyota cars in April, compared with nearly 30,000 in the same month last year. Daihatsu sales in April were only 1,330 units, far below 16,000 in April 2019.