Ease of Doing Business in Indonesia
Indonesia is the world's largest archipelago, with more than 17,500 (seventeen thousand and five hundred) islands. The said archipelago stretches between the Pacific and the Indian Oceans, and bridges 2 (two) continents, namely Asia and Australia/Oceania. This strategic position profoundly influences the country's culture, social and political life, and economy.
Moreover, Indonesia has a population of 267,663,435 (two hundred sixty-seven million, six hundred sixty-three thousand, four hundred and thirty-five) people. Today, Indonesia is the world's 4th (fourth) most populous nation, the world's 10th (tenth) largest economy in terms of purchasing power parity, and a member of the G-20.
In terms of poverty reduction, Indonesia has reduced the poverty rate by more than half since 1999 to 9,78% (nine point seventy-eight percent) in 2020. According to BPS, Indonesia had a total workforce of 143,72 (one hundred forty three point seven two) million people in August 2022, an increase of 3,57 (three point five seven) million people from August 2021.
As for the investment opportunities, it is publicly known that both domestic and foreign investors have developed their businesses in numerous sectors through investments in Indonesia. According to research conducted by BKPM, the 5 (five) highest origin countries of foreign investors in Indonesia from Q2 2022 are as follows:
Highest foreign investors in Indonesia from January to March 2022
Source: Indonesian Investment Coordinating Board
Subsequently, referring to the data from World Bank's Doing Business 2020 index, which was collected based on research in Jakarta and Surabaya, Indonesia has conducted the following business reforms:
to start a business, Indonesia (specifically Jakarta) has made improvements by introducing an online platform for business licensing and replacing hardcopy certificates with electronic certificates;
to get electricity, Indonesia (specifically Surabaya) improved the reliability of the power supply by conducting renovations to and enhancing the maintenance of its electrical grids;
to pay major taxes, Indonesia has introduced an online filing and payment system; and
to trade across borders, Indonesia has made it easier by improving the online processing of export customs declarations.
However, it is important to note that on 15 September 2021, the World Bank issued a statement regarding its Doing Business report, which announced that it has conducted an investigation due to data irregularities on the reports. It has since decided to discontinue the publication. This development casts doubt on the reliability of the data provided in its Doing Business reports. Therefore, we encourage the readers to take the data referenced from the World Bank Doing Business report hereinafter cautiously and lightly.
Business Reforms in Indonesia in order to Facilitate Doing Business
Source: World Bank’s Doing Business 2020 Index.
Indonesia is ranked 73rd (seventy-third) among 190 (one hundred and ninety) countries in terms of EoDB. The main obstacle in relation to licensing in Indonesia is that many parties are authorized to issue permits. This has resulted in a lengthy licensing bureaucracy, increased time required to apply for permits, and high licensing fees in Indonesia.
Through the enactment of Law No. 11/2020, the government seeks to accelerate licensing services in Indonesia to overcome various barriers to investment in Indonesia, especially in relation to complicated regulations and bureaucracy.
The enactment of Law No. 11/2020 is also an effort to amend the regulations relating to the convenience, protection, and empowerment of cooperatives and UMKM, enhancement of investment ecosystem, and the acceleration of national strategic projects, including the improvement of protection and welfare of workers.
Unfortunately, Law No. 11/2020 received significant criticism and objections from various parties and individuals during the legislating phase, culminating in filing to Constitutional Court of the Republic of Indonesia (“Constitutional Court”). On November 2021, the widely anticipated Constitutional Court decision toward Law No. 11/2020 has been issued, namely Decision of the Constitutional Court Number 91/PUU-XVIII/2020 on the Formal Review of Law Number 11 of 2020 on Job Creation (“Decision No. 91/2020”).
The Constitutional Court rendered 5 (five) points in the verdict on the constitutionality of Law No. 11/2020, which in essence are as follows:
declared that the creation of Law No. 11/2020 is contrary to the 1945 Constitution and conditionally does not have binding force unless it is procedurally corrected within 2 (two) years (“Conditionally Unconstitutional”);
declared that Law No. 11/2020 remains in force until the procedural correction is fulfilled within 2 (two) years;
instructed the legislators to complete the correction within 2 (two) years after the rendering of this verdict, whereby if the correction was not completed after the time limit had passed, then Law No. 11/2020 shall be declared permanently unconstitutional;
declared that if within the 2 (two) years period, the legislators failed to complete the procedural correction, the laws or provisions revoked or amended by Law No. 11/2020 shall re-enter into force;
suspended all actions or decisions which are of strategic and extensive nature, and all issuance of implementing regulations relating to Law No. 11/2020.
To respond the Decision No. 91/PUU-XVIII/2020, Parliament enacted the Law No. 13/2022 in which amended the Law No. 12/2011. The law aims to provide the formation of legislation that is planned, integrated, and sustainable requires arrangement and improvement of the mechanism for law making from planning, drafting, discussing, validating or stipulating to promulgation of laws. Several matters governed under this law includes:
Lawmaking Methods Amended by the Law No. 13/2022
Source: Law No. 13/2022.
Following to the enactment of the Law No. 13/2022, by the end of 2022, the President rendered the GRLL No. 2/2022. Consequently, the GRLL No. 2/2022 must be discussed by the Parliament at its incoming session either to be approved or rejected. The GRLL No. 2/2022 replaces the Law No. 11/2020, however, it maintains the validity of several matters:
The Measures Maintained by the GRLL No. 2/2022
Source: GRLL No. 2/2022
The implementation of licensing in the regions comply with the following conditions:
Implementation of Business Licensing in the Regions
Source: Indonesian Investment Coordinating Board.
An overview of Law No. 11/2020 is as follows:
The Gist of the GRLL No. 2/2022
Source: the GRLL No. 2/2022.
By virtue of RPJMN 2020-2024, Indonesia aims to elevate its EoDB ranking to 40th (fortieth) in 2024 from its current position at 73rd (seventy-third). Therefore, it is important for Indonesia to develop its economy in 2020-2024 by increasing investments in Indonesia (from the formation of gross fixed capital) by 6,6% (six point six percent) to 7,0% (seven percent) every year. In order to achieve this target, foreign and domestic private investments are encouraged through the deregulation of investment procedures, synchronization, and harmonization of licensing regulations.
Incentives for Investors
According to Article 21 Law No. 25/2007, the facilities or conveniences provided to the investors are as follows:
land titles facilities;
immigration service facilities; and
import licensing facilities.
In particular, such facilities are given to investors who are expanding their businesses or making new investments. However, to obtain these facilities, investments made by the investors shall meet 1 (one) and/or more of the criteria stipulated in Article 18 (3) Law No. 25/2007, namely:
absorbing considerable amount of labors;
being categorized as a high priority scale;
the relevant investment shall be included in infrastructure development;
implementing pioneer industries;
the relevant investments are located in remote areas, underdeveloped areas, border areas, or other areas deemed necessary;
preserving the environment;
implementing the research, development, and innovation activities;
partnering with micro, small, medium enterprises or cooperatives;
industries which utilize capital goods or manufactured machinery or equipment produced domestically; and/or
being included in the development of tourism businesses.