Sustainable Development Impacts of Investment Incentives: A Case ...

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products and regions. In terms of tax incentives, there are few regulations, for example Government
Regulation No. 45/1996 on Income Tax on Obligatory Tax Income for Specified Business Industry;
Government Regulation No. 147/2000 on Tax Treatment in Integrated Regional Economic
Development Zones (KAPET); Government Regulation No. 148/2000 on Corporate Taxes Facilities
for Investment in Specified Business Sectors and/or Specified Regions; Government Regulation No.
12/2001 on Import and/or Delivery of Taxable Specified Goods Strategic in Nature Exempt from Value
Added Tax; and Government Regulation No. 1/2007 on Corporate Tax Facilities for Investments in
Specified Business Sectors and/or Specified Regions.
Government Regulation No. 1/2007 replaced Government Regulation No. 148/2000, which faced
implementation hurdles as there were presidential decrees issued to regulate specified sectors and/or
specified regions granted such facilities. Government Regulation No.1/2007 offers income tax
dispensation facilities to 15 sectors, one of which is the chemical industry (both inorganic and organic).
The pharmaceutical industry is one of the other chemical industries that was granted the facility. The
incentive is strongly related to the petrochemical industry, one of the strategic industries in the
Manufacturing Industry Development Blueprint in Indonesia Year 2007 by Ministry of Industry.
The blueprint states that the chemical industry development strategy encompasses many things, for
example cluster location development (i.e., Kalimantan, Tuban and Cilegon), while strategies to achieve
supporting investment and business climates are implemented through fiscal, monetary and
administration incentives, including legal and safety guarantees. The fiscal incentives in particular are
promoted through tax incentive policies.
Other laws enacted to support the investment regime include Law No. 40/2007 on Limited Liability
Companies; Presidential Regulation No. 76/2007 on the Formulation Criteria and Requirement of List
of Lines of Businesses Closed and Open, Conditional to Investment; Presidential Regulation No.
111/2007 on the Amendment of Presidential Regulation No. 77/2007 on The List of Lines of Businesses
Closed and Open with Conditions to Investment; Government Regulation No. 7/2007 on the Import
and/or Transfer of Strategic Certain Taxable Items, which include the Value Added Tax Exemption.
3 Bilateral and Multilateral Investment Treaties and
Negotiations
3.1 Bilateral agreements
The Government of Indonesia has signed bilateral investment treaties (BITs) with other countries under
investment guarantee agreements (IGA). By signing an IGA, the government guarantees both
compensation and transfer of losses that occur as a consequence of wars and other armed conflicts,
revolutions, states of national emergency, revolts, insurrections or riots. The number of agreements
signed has increased gradually from 33 in 1996 to 61 in 2006. The latest countries to sign were Japan
and Russia in 2007, bringing the total IGAs signed by Indonesia to date to 63. 3 On April 16, 2008,
Indonesia agreed to begin bilateral investment treaty negotiations with Canada under Foreign
Investment Promotion and Protection Agreement (FIPA).
3 These countries include Argentina, Australia, Bangladesh, Belgium, Cambodia, Chile, Cuba, Czech Republic, Denmark, Egypt,
Finland, France, Germany, Hungary, India, Italy, Jamaica, Jordan, Kyrgyzstan, Laos, Malaysia, Mauritius, Mongolia, Morocco,
Mozambique, North Korea, Norway, Pakistan, People’s Republic of China, Poland, Qatar, Romania, Singapore, Slovak Republic,
South Korea, Spain, Sri Lanka, Sudan, Suriname, Syria, Sweden, Switzerland, Thailand, The Netherlands, Tunisia, Turkey,
Turkmenistan, Ukraine, United Kingdom, Uzbekistan, Vietnam, Yemen and Zimbabwe.
Sustainable Development Impacts of Investment Incentives: A Case Study of the Chemical Industry in Indonesia
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