RI plans tax incentives to lure Korean investors

Dadan Wijaksana, The Jakarta Post, Seoul

A package of incentives including easier licensing procedures and breaks is being formulated by Indonesia, already host to some 1,100 Korean businesses, to help lure more Koreans to the country, an investment forum here was told Monday.

M. Lutfi, the Indonesian Coordinating Investment Board (BKPM) chairman said at the opening day of Indonesia's Integrated Investment Promotion, the planned incentives would include income tax cuts and another forms of tax incentives such as tax allowances.

Those fiscal incentives will come on top of more lenient administrative and licensing requirements to be soon introduced by the Indonesian government, he added.

While details remained sketchy, as deeper discussions with other relevant ministries have not been finalized, Lutfi said the plan should show that Indonesia was willing to go the extra mile in luring more investors from South Korea, already Indonesia's fifth largest investor by country, in the first half of the year.

"The trade and investment relations between South Korea and Indonesia are getting stronger than ever. And we are here in Seoul today, along with regional government officials, to help make sure that they will only get better and better in the future," Lutfi said, referring to the more than 200 officials from local governments and investment boards he brought to the two-day event, which also features a seminar and an exhibition showcasing business opportunities in 33 provinces.

The Seoul event is the third investment forum the BKPM has held in the past two years, after holding similar one in Taiwan and Japan in 2005 and 2006 respectively. Later this year, the BKPM is scheduled to hold the such a forum in Paris .

According to BKPM data, the approval of foreign direct investment (FDI) from South Korea in the first semester of the year reached US$203.2 million, making it the fifth largest investor by country in Indonesia after the United Kingdom, Taiwan, Singapore and Japan.

Overall, from 1967 to the end of July, 2007, Korean investments in Indonesia were valued at slightly more than $12.6 billion with a total of 2.977 projects.

In the last three years, prominent companies that have invested in Indonesia include LG Electronics Indonesia with an investment totaling $191.7 million, followed by Samsung Electronics Indonesia ($171.1 million), Kolon Ina ($30 million) and Miwon Indonesia ($25.8 million).

Ki-Hwa Hong, president and CEO of the Korea Trade-Investment Promotion Agency -- the Korean equivalent of BKPM -- said in his welcoming remarks that the forum should bode well for efforts to promote investment in Indonesia at a time when the perception of Korean businesspeople in general was fairly positive.

"I think the Indonesian government has been working very hard to improve its investment climate, especially in terms of the regulatory framework.

"We can see now that the investment law has been enacted, while there is also progress in other crucial bills, including on taxation and labor. So actually in general, many Koreans are very keen to invest in Indonesia," he said.

However, while convinced that large Korean companies would be willing to invest in Indonesia, he emphasized the need for Indonesia to pay more attention to Korea's small and medium enterprises (SMEs).

"Our SME sector is actually very huge. There are currently around 40,000 SMEs in Korea, about half of them are also expanding overseas, mostly in China. And with China having slowly been applying tougher policies on foreign investors, for instance by abolishing various tax benefits, many Korean SMEs there are looking for alternative places to invest into. Indonesia should look at this as an enormous opportunity." he added.

Elsewhere, when asked about the effectiveness of the investment forums held in Seoul and other places in bolstering foreign direct investment, Lutfi pointed to the case of Taiwan as an example.

"We first came in 2005, Taiwan's investment in Indonesia throughout that year was around $93 million. And after holding the forum similar to this, the figure rose in 2006 to $202 million. And now in 2007, in the first half alone, their investments have reached $439 million," he said.

Lutfi summed up his remarks by telling participants; "We are not perfect, but we are definitely improving. We have a lot more to offer than our competitors in the region do. Nothing is easy in Indonesia, but I can tell you also this, nothing is also impossible in Indonesia."
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