No income tax for banks as Indonesia seeks new capital investors

INDONESIA is unveiling a slew of tax breaks to lure companies and people to move to its new capital in the heart of Borneo.

Banks and insurers operating in Nusantara — as the capital is known — would pay no income tax for up to 25 years if they invest before 2035, according to an investment ministry presentation seen by Bloomberg. Those investing before 2045 can get up to 20 years of tax break.

That is only one of various incentives being offered by the government to get businesses to support President Joko Widodo’s 600 trillion rupiah (RM175.02 trillion) plan to move the nation’s capital from bustling Jakarta.

“I’m sure with the regulation we have formulated to make it easier and give incentives for the new capital, then the investments will flow in,” said Investment Minister Bahlil Lahadalia in an interview on Feb 21.

The incentives would only be offered until 2045, when Nusantara is set to be completed. “If we keep giving tax cuts, then where do we get money to build the area’s infrastructure? This is only fair, boss,” he said.

Indonesia is hunting for investors to help realize Jokowi’s vision of building an entirely renewable-powered and technologically advanced city out of a forest, especially with only 20% of the price tag covered by the state budget. So far, 20 companies including local and foreign ones have shown interest in investing in Nusantara, with a few of them having signed deals, Bahlil said, while declining to name them.

The government has started building basic infrastructure at the new capital, including a water dam, roads and presidential and vice presidential buildings. The target is for public officials to begin relocating there next year.

To sweeten the deal, the government can bear people’s income taxes through 2035, according to the presentation.

Here are more incentives being lined up for Nusantara:

Investments larger than 10 billion rupiah in toll roads, energy, housing, shopping malls, health facilities and hotels, among others, would also get various tax breaks.

• Companies relocating their headquarters or regional offices to Nusantara with substantial business at the new capital would get up to 100% tax holiday for 10 years.

• Government to offer “super tax deduction” that would reimburse costs incurred by educational, research and non-profit institutions at the new capital.

• Government to waive import taxes for companies expanding industries at Nusantara. — Bloomberg

  • This article first appeared in The Malaysian Reserve weekly print edition