Govt says fine-tuning incentives for special economic zones

Andi Haswidi, The Jakarta Post, Jakarta

After missing the March deadline for submitting a draft law on special economic zones (SEZs), the government says it is still working out details on issues such as incentives and facilities.

"There is no problem actually, we are just trying to synchronize and harmonize the draft with existing laws and regulations," said the executive secretary of the national team on SEZs, Bambang Susantono

"Some of the incentives and facilities that we previously planned are already available in the new Investment Law. Therefore we need to do some fine-tuning."

The government initially planned to provide the legal basis for special economic zones in an emergency government regulation. It then switched course and decided to issue a law on the special zones, after discussing the matter with the House of Representatives.

Citing the example of China, the government has expressed its commitment to provide more liberal economic laws to boost foreign investment in the SEZs.

"Incentives and facilities for businesses will cover favorable tax, customs, land rights and immigration procedures. All under a one-stop service," Bambang said.

On fiscal incentives, the future SEZ law will reportedly exempt all imported goods coming into special economic zones from import duties and value added tax.

Regarding land rights, investors will have similar opportunities provided under the new Investment Law. These include 95 years of cultivation rights, 80 years of building rights and 70 years of land usage rights.

Many business players have said labor is the most important issue to be addressed for SEZs. Businesses want more liberal labor regulations, particularly related to severance pay and minimum wage.

On this issue, the draft law in its current form only stipulates there should be tripartite cooperation among the government, companies and unions to address labor issues.

In addition to Riau Islands province, which plans to turn the islands of Batam, Bintan and Karimun into a special economic zone, 12 other provinces have proposed setting up SEZs. These provinces include Banten, which has proposed an SEZ in the area of Bojonegara; North Sumatra (Belawan); Central Java (Jepara and its northern coast); and North Sulawesi (Bitung).

According to the draft SEZ law, for an area to become a special economic zone it must have the full commitment of its respective provincial administration. The area must also be located in a strategic location and close to an international port, meet basic infrastructure requirements and be at least 500 hectares in area.

In order to coordinate the zones, the draft law proposes the establishment of an SEZ Development Board, which would have the authority to decide which area is eligible to become an SEZ. This board would be headed by the coordinating minister for the economy, and would be directly responsible to the President.

"To assure the competitiveness of our SEZs, we have conducted benchmarking with SEZs in China, India, Vietnam and the Philippines," he said.

The earliest and most well known SEZs were founded by the government of China in the early 1980s, under then leader Deng Xiaoping.

As of 2007, more than 500 SEZs have been set up in more than 75 countries, most closely following the China model. This has raised concern with the World Bank, which questions the sustainability of such a large number of SEZs.
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