Doing Business In... 2021 - Walalangi & Partners

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Doing Business In... 2021 - Walalangi & Partners
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Doing Business In...
2021
Indonesia
Luky I. Walalangi, Jeanne Elisabeth Donauw,
Sinta Dwi Cestakarani and Siti Kemala Nuraida
Walalangi & Partners
(in association with Nishimura & Asahi)

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Doing Business In... 2021 - Walalangi & Partners
INDONESIA
Trends and Developments
Contributed by:
Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani
and Siti Kemala Nuraida
Walalangi & Partners (in association with Nishimura & Asahi) see p.7

Indonesia – Tackling Yet Another Challenging         ment of the cost of the vaccine some companies
Year                                                 decided to withdraw from the scheme, consider-
Indonesia’s economy continued to experience          ing the price too high. Thus far, the government
contraction in the first quarter of 2021 due to      is still reluctant to impose a total lockdown on
the COVID-19 outbreak, but the country’s GDP         a national scale and has instead implemented
growth has started to see some early signs of        certain restrictions on targeted areas where the
recovery, particularly in comparison with that       number of COVID-19 cases is considered high.
reported for the previous quarters in 2020. Two
main factors contributing to the initial phase of    Sovereign wealth funds, infrastructure
recovery are (i) the roll-out of the COVID-19 vac-   development
cination programme, and (ii) the enactment by        While the short-term focus of government spend-
the government of a series of regulations and        ing remains on healthcare and relief measures
policies as part of regulatory reforms. The pur-     to support households and businesses, in the
pose of the reforms is to relax certain require-     medium and long term, the focus of the govern-
ments and to improve the ease of doing busi-         ment is on infrastructure development. To help
ness, increasing foreign direct investment (FDI)     finance this, the government has created the
opportunities in Indonesia and supporting eco-       Indonesia Investment Authority (INA), Indone-
nomic growth – all of which are believed to have     sia’s first sovereign wealth fund which is tasked
brought positive effects to the market.              with attracting funds from the private sector and,
                                                     together with the government’s funds, provide
COVID-19 vaccination programme and other             financing for various infrastructure projects,
government responses                                 such as toll roads.
In Indonesia, early January 2021 was marked
by the roll-out of an ambitious mass COVID-19        INA has successfully attracted key investors,
vaccination programme to vaccinate 181.5 mil-        including the US International Development
lion people or two thirds of Indonesia’s total       Finance Corporation (DFC), the Japan Bank for
population. The vaccinations were planned to         International Cooperation (JBIC), and the United
be completed within 15 months so as to achieve       Arab Emirates. Having only been established
herd immunity by the end of the programme. In        recently, INA has a long way to go to demon-
an effort to speed up the recovery of Indone-        strate its performance, particularly to its inves-
sia’s economy, the government also authorised        tors.
a private vaccination scheme to run in parallel
with the state-run vaccination programme. By         Regulatory reforms to continue
mid-May 2021 the news reported that more than        Following the enactment of the Omnibus Law
20,000 companies had signed up for the scheme.       late last year, a number of implementing regula-
Later reports found that following the announce-     tions were issued to help support the govern-

                                                                                                     2
Doing Business In... 2021 - Walalangi & Partners
INDONESIA Trends and Developments
Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
Walalangi & Partners (in association with Nishimura & Asahi)

ment’s efforts to improve the business climate         Initially, the government offered a tax-incentive
in Indonesia, increase inbound investments and         scheme for certain types of cars with engine
create more jobs for Indonesians.                      power below 1,500cc. Later, the government
                                                       decided to expand the tax incentive on car sales
One of the key areas of the regulatory reforms is      to include more types of vehicles with engine
the amendment to the investment list. With the         power up to 2,500cc, as part of its efforts to sup-
2021 investment list, the government decided to        port Indonesia’s automotive industry and boost
fully open a significant number of sectors to FDIs     economic recovery. As a result, according to a
and relax the maximum limit of foreign owner-          report by the Association of Indonesian Automo-
ship of these sectors. Nonetheless, sectors such       tive Manufacturers (Gaikindo), car sales in the
as casinos and gambling remained prohibited for        country have witnessed a surge.
both domestic and foreign investments.
                                                       The government also offered tax incentives for
Labour law                                             the acquisition of certain types of new landed
Another key area touched by regulatory reform is       houses and new apartments. These tax incen-
labour law. While Indonesia’s regulatory regime        tives are intended to help support the property
has for years been regarded as a “pro-labour”          market which has been hit hard following the
regime, it appears the intention of the recent         impact of the COVID-19 outbreak.
reforms on manpower regulations is to help sup-
port companies by, among other things, provid-         To increase the state’s revenue, the government
ing flexibility in relation to outsourcing arrange-    recently proposed a plan to impose a 35% per-
ments and fixed-term contract employees – two          sonal income tax rate on any taxable annual
areas that were previously subject to stricter         income above IDR5 billion. Under the current
rules. The new reforms also offer useful clarifica-    regime, annual income over IDR500 million is
tion with respect to a change of shareholders in       subject to a 30% income tax rate. According to
a company and at which point this event triggers       the mass media, once the plan is approved, the
a mandatory compensation payment obligation            new personal income tax rate will apply in 2022.
to employees.
                                                       General market conditions
The majority of Indonesian working-age people          In its press release on investments in Indone-
still rely on labour-intensive sectors to earn their   sia for the first quarter of 2021, the Investment
income, and therefore, labour-intensive sectors        Co-ordinating Board (known by its Indonesian
(eg, agriculture, manufacturing and mining) are        abbreviation, “BKPM”) reported that investment
vital to the country’s economy.                        realisation reached IDR219.7 trillion, which is a
                                                       2.4% increase compared to the previous quarter
Various stimuli to support economic growth             (October to December 2020). Of this investment
This year, the government decided to boost eco-        realisation amount, 50.8% or IDR111.7 trillion is
nomic growth by providing the following sup-           reported as FDI realisation, which means this
port.                                                  increased by 14% from IDR98 trillion in the pre-
                                                       vious quarter.
It decided to continue to provide an electricity
subsidy for certain categories of customers.           From the perspective of an investment destina-
                                                       tion, West Java, Jakarta, Central Sulawesi, Riau
                                                       and Southeast Sulawesi appear to be the top

3
Doing Business In... 2021 - Walalangi & Partners
Trends and Developments INDONESIA
  Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
                                              Walalangi & Partners (in association with Nishimura & Asahi)

regions targeted by FDI. Meanwhile, infrastruc-        year, remain unclear. Some SOEs, such as PT
ture and energy, the metal industry, the auto-         Indonesia Healthcare Corporation (Persero) and
motive, food and beverages industries, logis-          PT Bio Farma (Persero) from the pharmaceuti-
tics, warehousing, and telecommunications,             cal and healthcare-related sector, as well as PT
are among the sectors where significant FDI is         Indonesia Asahan Aluminium (Persero), a hold-
recorded.                                              ing company of PT Bukit Asam Tbk (PTBA), PT
                                                       Timah Tbk (TINS), and PT Antam Tbk (ANTM),
This year was marked by the formation of GoTo          from the mining sector – are considered strong
Group, a company specialising in e-commerce,           candidates for an IPO. Meanwhile, PT EDC and
on-demand services and financial services, by          Payment Gateway (Persero), as well as PT Day-
Gojek and Tokopedia, two leading tech compa-           amitra Telekomunikasi (Mitratel) and PT Telkom
nies in Indonesia. According to a press release        Data Center, are among the candidates consid-
published by the group in May this year, the           ered for an IPO in the financial services sector
combined group has a gross transaction value of        and telecommunications sector, respectively.
over USD22 billion, with more than 1.8 billion
transactions in 2020. The deal was backed by           Conversion to renewable energy
major investors, such as Alibaba Group, Face-          Energy consumption in Indonesia has been
book, Google, Northstar, Paypal, Softbank, and         largely dominated by non-renewable energy
Temasek. It is said to be the largest-ever busi-       sources, primarily coal, oil, and gas, accounting
ness combination in Indonesia and the largest          for 37.28%, 35.03%, and 18.51% respectively.
between two Asia-based internet media and ser-         The government plans to reduce the national
vices companies to date. GoTo Group reportedly         greenhouse gas emissions and has set a specific
plans to do an initial public offering (IPO) later     target under the National Electricity Master Plan
this year.                                             of at least 23% renewable energy consumption
                                                       by 2025 and 31% by 2050. In late May 2021,
Meanwhile, as at the end of May 2021, the              the director general of the Indonesia Energy and
Indonesia Stock Exchange recorded 16 IPOs,             Mineral Resources Ministry told a parliamentary
representing over 50% of the total of 30 IPOs it       hearing that Indonesia will no longer approve
expected to take place this year. The first listing    any new coal-fired power plants in an effort to
this year was by PT FAP Agri Tbk, a company            reduce carbon emissions.
engaged in oil palm plantations and process-
ing plants, which managed to raise IDR1 tril-          To support the conversion to green energy, the
lion (nearly USD72 million). By comparison, the        country also plans to offer renewable energy
largest IPO fund raised during 2020 was by PT          incentives, impose carbon taxes, and develop a
Metro Healthcare Indonesia Tbk in the amount of        carbon trading system, although details of such
IDR1.1 trillion (around USD 78.5 million). Some        plans are yet to be announced.
commentators therefore believe that the IPO of
PT FAP Agri Tbk has shown initial signs of mar-        Currently, the government is reportedly plan-
ket rebound.                                           ning to issue a new regulation on the renewable
                                                       energy-based power purchase price in 2021 by
Several state-owned companies were report-             replacing the current power purchase price, the
edly preparing for an IPO, although details            calculation of which is based on a less attrac-
surrounding the IPO plan, including whether            tive generation cost for renewable energy. The
it would take place this year or the following         new price is expected to be more bankable and

                                                                                                          4
INDONESIA Trends and Developments
Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
Walalangi & Partners (in association with Nishimura & Asahi)

attractive to investors. In addition, the draft pres-   Acceleration of digital transformation, and
idential regulation also offers fiscal incentives in    urgency of data protection
the form of an income tax holiday, an income tax        In late May 2021, Telkomsel launched its Tel-
allowance, value-added tax exemption, import            komsel 5G service which made it the first cellular
duty exemption on renewable energy, as well as          operator to offer 5G in Indonesia.
property tax reduction for geothermal energy.
                                                        The COVID-19 outbreak has led to a surge in
Meanwhile, Indonesia state-owned electricity            e-commerce and accelerated digital transfor-
company, PLN, was reported to be replacing              mation in many countries, and Indonesia is no
coal and gasified coal power plants in stages,          exception. In a report by East Venture in the East
starting with the closure of three coal-fired pow-      Ventures Digital Competitiveness Index 2021,
er plants by 2030 with a combined capacity of           the pandemic helped accelerate the adoption
1.1 gigawatts. PLN’s ambition is to achieve car-        of digital services in Indonesia. An education
bon neutrality by 2060.                                 technology platform, Ruangguru, was reported
                                                        to have over 20 million students. Meanwhile,
Struggling companies                                    over two million new merchants were reported
One of Indonesia’s well-known retail groups,            to have joined the Tokopedia marketplace plat-
PT Hero Supermarket, plans to close all its             form in a period of 12 months or so, a significant
supermarket outlets that go by the brand name           increase compared to the number in the previ-
“Giant” in the second half of 2021. The com-            ous periods.
pany is reported to have suffered losses of over
IDR1 billion in the first quarter of 2021 and has       Notwithstanding the positive developments in
decided to re-strategise its businesses. Govern-        this space, the risk of cybersecurity and data pri-
ment policies to restrict movements and shop            vacy breaches in Indonesia has also increased.
operating hours have driven people to shift to          One recent incident in 2021 involved the alleged
shopping online, and this is seen as a contrib-         unauthorised access to and disclosure of per-
uting factor in the drop in the group’s revenue.        sonal data of Indonesians kept by the country’s
Other retail groups, such as Centro Department          Healthcare and Social Security Administrator.
Stores and PT Matahari Department Store Tbk,            This incident is good motivation for the Indone-
are also reported to have closed some of their          sian government and the house of parliament to
outlets due to financial difficulties.                  finalise their discussions on the draft integrat-
                                                        ed personal data protection law (“PDP Bill”). It
In April 2021, Bank QNB Indonesia filed a bank-         was reported that the lawmakers are pushing to
ruptcy petition against PT Sri Rejeki Isman Tbk         pass the PDP Bill within this year. Some notable
(Sritex), a well-established local textile com-         updates found in the PDP Bill are as follows:
pany. Prior to that, Sritex reportedly terminated
the jobs of thousands of its employees due to           • the PDP Bill provides more clarification on
financial difficulties. Another textile company,          which data is considered to be personal data;
PT Pan Brothers Tbk also faced a bankruptcy             • the PDP Bill differentiates between the
petition filed by its creditor, Maybank Indonesia.        responsibilities of a personal data processor
                                                          and a personal data controller; and
                                                        • the PDP Bill introduces criminal sanctions for
                                                          unlawful disclosures, utilisation, falsification
                                                          and/or acquisition or collection of personal

5
Trends and Developments INDONESIA
  Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
                                              Walalangi & Partners (in association with Nishimura & Asahi)

 data, from the imposition of a penalty of up to       Closing remarks
 IDR70 billion, to imprisonment for a period of        Notwithstanding all the challenges it faces,
 up to seven years.                                    Indonesia remains confident that it is in a better
                                                       position than it was in 2020. The government
The passing of the PDP Bill will demonstrate the       is convinced that the economic growth tar-
strong commitment of the Indonesian govern-            get can be achieved by continuing to push for
ment to respond to increasing data protection          structural reforms, with a focus on developing
issues and the need for legal certainty for per-       human resources and infrastructure, and efforts
sonal data protection.                                 to improve the ease of doing business.

                                                                                                          6
INDONESIA Trends and Developments
Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
Walalangi & Partners (in association with Nishimura & Asahi)

Walalangi & Partners (in association with Ni-          legal services. W&P comprises three partners,
shimura & Asahi) (W&P) is a corporate law firm         25 lawyers and two counsels focusing on M&A,
in Indonesia that has received recognition from        banking and finance, real property, FDI, anti-
various reputable independent legal directories.       trust, debt and corporate restructuring, capital
The firm is in full association with Nishimura &       markets, employment, general corporate, TMT,
Asahi (N&A), Japan’s largest full-service inter-       energy and construction. A microcosm of Indo-
national law firm, with more than 600 lawyers          nesia, W&P reflects the diversity of the country
working in close collaboration at 18 offices           and its people.
around the world to offer unrivalled one-stop

AUTHORS

                Luky I. Walalangi is the founder                       Jeanne Elisabeth Donauw is a
                of Walalangi & Partners and is                         corporate partner of Walalangi &
                an expert in M&A, banking and                          Partners. During her two
                finance, and real estate. In his                       decades as a lawyer, she has
                20-year career, he has been                            focused on Indonesian inbound
                awarded A-list status by top                           investments and she advises
Asian business law journals and he has been            clients on complex and sophisticated M&A
continually recognised for his expertise in            transactions, company incorporations and
corporate/M&A by leading legal directories. He         corporate restructurings across a variety of
has assisted various foreign companies in              industries. Prior to joining W&P, she was a
complex investments and acquisitions                   partner of the Indonesian associated firm of
(including assets and portfolio loan                   Herbert Smith Freehills. Having extensive
acquisitions) and corporate restructurings in          experience in assisting clients with investments
Indonesia. He has also represented leading             into Indonesia, Jeanne Elisabeth has a deep
global banking and finance groups on major             understanding of the practice and thinking of
financial transactions and sophisticated               Indonesian regulators, which her clients find
fund-raising projects.                                 extremely useful in helping them to achieve the
                                                       smooth implementation of their investment
                                                       plans.

7
Trends and Developments INDONESIA
  Contributed by: Luky I. Walalangi, Jeanne Elisabeth Donauw, Sinta Dwi Cestakarani and Siti Kemala Nuraida,
                                              Walalangi & Partners (in association with Nishimura & Asahi)

                 Sinta Dwi Cestakarani is an                           Siti Kemala Nuraida is an
                 Indonesian lawyer with almost a                       Indonesian lawyer with more
                 decade of experience in                               than seven years of experience,
                 assisting domestic and                                whose experience lies in M&A,
                 international clients. Her main                       banking and finance, multi-
                 areas of practice include                             finance fintech and construction.
banking and finance, M&A, mining and TMT.              She has been recognised as one of the
Prior to joining Walalangi & Partners, Sinta Dwi       up-and-coming next generation of lawyers in
worked for the biggest law firm in Indonesia.          Indonesia. An associate at Walalangi &
During her years of practice, she has assisted         Partners, she actively shares her knowledge
both domestic and foreign companies in                 with the legal community both domestically
various notable transactions and advisory              and internationally and has contributed articles
work, predominantly in the areas of TMT                on M&A as well as banking and finance to
mergers and acquisitions, mining and fintech           numerous international publications.
business. Despite the relatively short duration
of her career, she has already received
recognition for her many achievements and
has been named as an up-and-coming figure
in her field in Indonesia.

Walalangi & Partners (in
association with Nishimura &
Asahi)
Pacific Century Place 19th Floor
Jalan Jenderal Sudirman Kav. 52–53
SCBD Lot 10
Jakarta 12190
Indonesia

Tel: +6221 50808600
Fax: +6221 50808601
Email: info@wplaws.com
Web: www.wplaws.com

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