Economy: For the first time since the 1997/1998 Asian financial crisis, Indonesia’s economy is set suffer a contraction as the country struggles to get Covid-19 pandemic under control. Gross domestic product is forecast to decline 0.6% to 1.7% this year, according to Finance Minister. The government previously had estimated the economy could grow 0.2% or shrink by as much as 1.1%. The recovery is still very early and fragile, so it must be maintained,” the minister said.
Private consumption, investments and exports are all set to decline this year, pushing the economy to contract in the third and fourth quarters. The government is maintaining its 2021 forecast for growth of 4.5%-5.5%. Government consumption is set to be the only component showing positive growth of 0.6% to 4.8% this year as the government accelerates spending. However, the minister added that it cannot be done alone, it must be accompanied by a recovery in the private consumption and business sectors.
Tax: Indonesia added twelve more companies, including social media firm Twitter and video-conferencing site Zoom, into a list of internet-based businesses that must pay a 10% value-added tax on sales. In July fiscal authority had already announced that Alphabet Inc’s Google Asia Pacific, Netflix and Facebook among other tech companies would be liable to VAT. Globally, governments are seeking to ensure that internet-based tech giants are paying their fair taxes. Indonesia’s moves come amid a shift to more online business with increased remote working during the coronavirus and as the pandemic has hit government finances. Among companies named as the tax payers were business networking site LinkedIn Singapore, two units of Twitter, Skype Communications, Zoom Video Communications, antivirus provider McAfee Ireland, and Microsoft Ireland Operations.
Finance: Bank Indonesia (BI) is supporting the digitalization of banking industry, which has become particularly vital amid the ongoing Covid-19 pandemic, to allow customers to carry out banking activities from home. “Banks that do not carry out digital banking or open banking will, of course, be left behind,” BI Governor said early this week. Since May 2019, BI has encouraged open banking as part of the 2025 Indonesian Payment System Blueprint. Through open banking or banking digitalization, banking services can be connected with other digital platforms, including financial technology companies (fintech) and online trading companies or e-commerce, through Application Programming Interface (API), thus providing ease of transaction to customers.
BI Governor outlined four aspects that banks need to pay close attention to while developing open banking. The first aspect involves the transformation of the technology infrastructure, wherein all banking service systems are interconnected. For example, services related to treasury, credit, and funds. The second aspect is building a data warehouse from various information systems owned by the bank, including the metadata of depositors and debtors. “Whether the metadata has also been built using artificial intelligence, analytical big data, it must be developed to process various data so that it can be useful,” he added. The third aspect related to the development of business models based on information technology systems and metadata owned by the bank to provide interactive services online to customers. All services that previously were exclusively provided to certain customers would, with open banking, become available to all customers. Thus, all customers would get the same services, especially in personal banking. The last aspect concerns changing the mindset from the highest levels of the company to subordinates in carrying out the digital transformation.
Industry: Seijin Fashion, a South Korean company is set to relocate its plant from China to Central Java, and it is expected to bring in a total investment of US$35 million. Chief of the investment coordinating board (BKPM) and State-Owned Enterprises Minister received confirmation of the planned relocation while visiting South Korea on 23-24 September to follow up the company’s plan to invest in Indonesia. The company will engage in garment industry for export and it expected to create up to four thousand jobs. Sejin is a subsidiary of Parkland Co. Ltd., which has been engaged in the footwear industry in Indonesia for fifteen years
During the meeting with the BKPM chief and State-Owned Enterprises minister, Sejin also sought the Indonesian government’s support to expedite the relocation of its plant to Indonesia. The support is related to the technical survey of its machines as non-new capital goods to be relocated from its plant in China, an application for the designation of the plant’s location as a bonded zone, entry permits for the company’s employees during the COVID-19 pandemic, and tax allowances. Approval of the company’s application for tax allowances has been the first issued by BKPM since it was delegated the responsibility by the Finance Ministry. BKPM will continue to encourage Seijin to meet its commercial production target in the fourth quarter of 2020.