Doing Business In... 2021 - Walalangi & Partners
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Definitive global law guides offering comparative analysis from top-ranked lawyers 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) practiceguides.chambers.com
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
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
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 8
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