18 Jan Omnibus law: Indonesia on the precipice of greatness
Indonesia, ASEAN’s largest economy, with a GDP of over USD 1 trillion and a population of nearly 270 million, has been inching towards economic dominance for quite a while now. In the wake of the global pandemic and the economic impact it has had, there is an additional impetus to speed up growth and force long term sustainable economic expansion, so that Indonesia can achieve its great potential and stand among the most developed economies in the world.
With this goal in mind, President Jokowi and his government passed the landmark Omnibus Law in November of 2020, instituting broad ranging reform that would change 79 different laws under it. With the express purpose of improving the country’s business and investment climate, the Omnibus Law will effect change in multiple areas of the Indonesian economy such as manpower, business licensing, immigration, taxation, land procurement and others. This sweeping reform will help in eliminating bureaucratic red-tape and doing away with opaque and redundant regulations, and thus will ultimately improve the ease of doing business in Indonesia.
The Law in itself is over 1000 pages long, intricately detailed, and thus somewhat complex. However, its focus can be felt largely on the following broad aspects which are expected to significantly help investors who are looking to engage in the Indonesian ecosystem:
- Introduction of a new business license concept – Perizinan Berusaha
- Amendments to some provisions of existing Manpower Law, 2003
- Unification of a skewed tax regime
- Strengthening of SEZ related laws
- Setting up of an Indonesian Sovereign wealth fund
- Streamlining measures on the environmental protection and management rules
The question, however, remains: what benefits would such wide-ranging reform endow Indonesia with?
Among the key benefits that would stem from the Omnibus Law, the following would truly help in furthering Indonesia’s economic progress on multiple fronts:
- Increasing labour productivity – Simplifying hiring processes of foreign workers, easing HR policies, making it easier to outsource different kinds of work and making it easier for business to make manpower (through a significant reduction in severance pay requirements).
- Opening doors to foreign investment – Significantly reducing the number of sectors that are subject to investment and ownership restrictions.
- Improving Indonesia’s competitiveness – By offering increased incentives to investors in SEZs, simplifying land procurement processes, simplifying licensing processes by integrating it into a centralised licensing, system through Online Single Submission, and reducing Corporate Income Tax rates from 25% to 20%.
- Helping Indonesia bounce back from the pandemic with economic growth of nearly 6% – Through the elimination of complex and redundant regulations, easing of land acquisition processes, reduction in ownership and investment restrictions for foreign investors, and growth in the country’s formal sector (and therefore growth in tax revenue).
- Positive messaging for the Indonesian economy – A key, yet understated, implication of the Omnibus Law is that the government is closely listening to and incorporating feedback from the business and investment community. Like any other emerging market, there are some challenges associated with doing business in Indonesia, but the passing of the Omnibus Law proves that government is adamant on addressing these challenges and thus proving that Indonesia is well and truly open for business
There is no question that Indonesia is currently standing on the precipice of greatness and if all goes as intended, the Omnibus Law might just be the fuel that propels Indonesia to the top of the global economic ladder.
Read about the passing of the Omnibus Law here