1

Agriculture Food Crops | Plantation | Livestock | Fisheries | Forestry

On the Horizon

In early August the Ministry of Environment and Forestry (Lingkungan

Hidup dan Kehutanan / LHK) indicated that the final draft of Presidential

Instruction (Inpres) regarding the moratorium on licensing of oil palm

plantations had not yet reached President Jokowi’s desk. The draft

remains with the Coordinating Minister of Economic Affairs as discussions

continue among several ministries holding authority pertaining to land and

plantations. This Inpres aims to arrest the speed of deforestation and a

negative impact on the environment. It was previously slated to be signed

off by the President in late July or early August 2016. The government

stated on July 12 a moratorium on the licensing of oil palm plantations will

be implemented for a period of five years, and the Ministry of Environment

and Forestry will set up categories of land evaluation during the

moratorium period. The evaluation may encompass 950.000 ha of principle

permits awaiting the decree (SK) from the Environment Minister. The

moratorium will also concern land that is allegedly not consistent with

release purposes, transferable permits and plantations that have not yet

completed the licensing process. This may present some legal uncertainty

for oil palm producers which may impact palm oil futures if it drags on.

However a positive knock-on effect of the Inpres when it is eventually

passed, is likely to result in an immediate rise in the value of existing oil

palm plantations.

Consumer Goods

Food & Beverage | Cigarettes | Pharmaceutical | Cosmetics | Household

Articles | Household Appliances

On the Horizon

The Indonesian government has previously indicated there are two

possible options in order to reduce cigarette consumption as well as

increasing the country’s excise revenue. It comes down to a choice of

increasing excise tax on cigarettes or instructing cigarette producers to

raise the product selling price. The Ministry of Finance is still in discussion

September 2016

Government Relations

Stakeholder Mapping

Parliamentary Monitoring

Policy & Regulatory

Assessment

On-the-Ground Business

Intelligence

Vendor Screening

Commercial Due Diligence

Reputational Due Diligence

Market Entry Support

Services

Subscribe to IPM

Indonesia Policy Monitor

World Trade Center 5 Level 3A,

Jl. Sudirman Kav 29-31, Jakarta

12920 Indonesia

Telephone: +6221.2598.5248

info@cascadeasia.com

www.cascadeasia.com

Contact Us

Sign-up here to receive Indonesia

Policy Monitor.

http://eepurl.com/OqIkz

2

with several relevant parties and so far there has been no dissent from Parliament on these

issues. The policy will be based on current excise law and will be included in a draft law

implemented in the 2017 state budget. This will likely be mandated before the start of 2017 state

budget law (UU APBN) discussion. Amended retail prices for tobacco products usually come

into effect on January 1 each year, and the regulation is slated to be announced in late

September.

The enactment of this regulation will likely hurt the tobacco products industry which is the

biggest contributor of Indonesia’s excise revenue. The government expects the industry to

generate up to IDR140 trillion (approx. US$10.6 billion) from excise receipts this year. The

government’s goal to improve the country’s health by hiking the so-called ‘sin tax’ won’t

necessarily wean the nation off tobacco products as there is a widespread black market for

illegal cigarettes. To put it into perspective, distribution of black market cigarettes rose 11.7%

when excise tax was increased in 2014, according to a study by Gadjah Mada University.

Indonesia is the world’s third largest consumer of tobacco, after China and Russia. The

government should consider taking a different approach and expand the range of goods subject

to excise tax. The country currently has a very limited number of goods subject to excise tax

currently and the tobacco industry contributed a massive 96% of the state's excise revenue in

2015.

Financial Banking | Financial Institutions | Securities | Insurance

On the Horizon:

The government is currently discussing a proposal to reduce the Corporate Income Tax (PPh

Badan) rate by considering factors such as tax base, and this was expected to be finalized by

the end of August 2016. The Ministry of Finance has been mulling a revision of PPh Badan for a

year, which is based on the income tax law (UU no.36/2008) and its derivative law (PP

no.46/2013). The government plans to revise the law regarding (1) value added tax (PPn), (2)

income tax (PPh), and (3) general provisions and procedures in taxation. No details are yet

confirmed regarding the mechanism of this tariff/rate adjustment. Indonesia’s current corporate

tax rate of 25% puts it at a distinct disadvantage compared to countries such as Singapore.

Proposals on the table include a provision to initially reduce the corporate tax burden to 20%

and then down to 17%, in line with Singapore, according to the Chief of the Directorate General

of Taxation. Lowering the corporate tax rate will give companies financial leeway to invest

further or encourage new entities to expand into the country, however a stable currency and the

continuing removal of barriers to doing business – such as the complex company registration

system is key. Interestingly, Coordinating Maritime Minister Luhut Panjaitan more recently

unveiled a tentative plan to set up offshore tax havens on two islands close to Singapore. It is a

conscious move to tap firms with the promise of low corporate tax rates right on Singapore’s

3

doorstep. The resort islands of Bintan and Rempang have been earmarked as the tax havens

and are located just 60 km from Singapore.

Infrastructure Energy | Toll Roads | Ports | Airports | Telecommunications | Transportation | Utilities | Non-

Building Construction

On the Horizon

The Ministry of Telecommunication and Informatics has concluded its calculations and

announced an average 26% reduction of mobile interconnection rates/tariffs for 18 call

scenarios, in Ministerial Regulation (Perkominfo) no.8/2016, which will be enacted in September

2016. The new tariff is now set at IDR204 per minute, down from IDR250. Interconnection fees

are payable by one operator to another when a call is placed by a cell phone. The reduction is

intended to streamline user activity as cell phone users invariably possess multiple SIM cards in

order to benefit from lower same operator call fees The new tariff is significantly lower than that

applied in countries such as Japan and the Philippines, which range from IDR1,447-2,108 /min

and IDR1,184/min, respectively. Parliament has requested a delay in the price revision which

was publicly announced on August 2, for further discussions among stakeholders. There are

fears the price revision will negatively impact revenue derived from state-run operator

Telkomsel. Telkomsel has hinted it may have to increase fees for data usage and infrastructure

maintenance to make up the shortfall in revenue.

Extractive

Coal | Oil | Natural Gas | Metals | Minerals

On the Horizon

The Ministry of Energy and Mineral Resources has confirmed that on-going discussions

concerning coal prices for mine mouth steam power plant will lead to a revision of Ministerial

Regulation (Permen ESDM no.9/2016). Under the regulation, coal prices for mine mouth steam

power will also cover an additional margin of approximately 15-20% of production costs incurred

by mining companies. This margin may well be too big of a constraint in order to produce

electricity efficiently, amid a recent drop in coal prices.

4

Manufacturing

Machinery | Heavy Equipment | Automotive | Components | Textiles | Garments | Footwear |

Cables | Electronics

On the Horizon:

On August 11, the new Minister of Industry revealed a proposal to increase the number of

potential recipients of gas price discounts set at approximately US$4 / MMBTU, by adding more

industries, specifically pharmaceuticals, pulp and paper, food and beverages, textiles and

footwear. A task force has been established to study these additional industry sectors and

determine the most competitive gas prices. In essence, this ministerial regulation (Permenperin)

will explore gas pricing and calculate the economic value of each respective industry both prior

and post gas price reduction. The regulation is also expected to include recommendations for

companies to receive appropriate gas pricing. This Ministerial regulation will then serve as a

legal basis prior to implementing Presidential Regulation (Perpres no.40/2016). The

Determination of Natural Gas Pricing forms part of economic policy package III, which was

launched in October 2015.

The current status of the gas pricing regulation is in the submission stage with the Ministry of

Energy and Mineral Resources, which is tasked with revising Ministerial Regulation (Permen

ESDM no.6/2016) concerning the allocation, use and pricing of natural gas. The government’s

previous gas price incentive was set at US$6 / MMBTU and specifically intended for seven

industry sectors, namely fertilizer, petrochemicals, oleo chemicals, steel, ceramics, glass, and

gloves. This regulation however, has been stalled and will likely be further delayed following the

new requests made by the Ministry of Industry.

The regulation should help firms boost their bottom line and put them on an even footing with

similar industries in other countries. Raw gas prices in ASEAN neighbors such as Malaysia are

considerably cheaper.

Cascade Asia Advisors is a boutique advisory firm focused on Southeast Asia. We help

businesses anticipate risk and make better decisions using forward-looking, on-the-

ground business intelligence. Please visit www.cascadeasia.com for more information.