BKPM wants tax incentives for R&D funds

Satria Sambijantoro, The Jakarta Post, Jakarta | Headlines | Thu, April 11 2013, 8:27 AM

The Investment Coordinating Board (BKPM) says it will propose a tax-reduction scheme for investors and companies that make an investment to promote research and development (R&D) and that provide capacity-building training to their workers.

Encouraging more companies to provide education and training for their employees would trigger the greater innovation needed for sustainable economic growth over the long term, BKPM chairman M. Chatib Basri said.

“Companies must be encouraged to promote innovation and capacity building because if those two things are missing, it means they are only concerned about short-term profits,” he told reporters in Jakarta on Wednesday.

Chatib urged companies operating here to follow in the footsteps of French cosmetics giant L’Oreal, as well as Japanese automakers Toyota and Daihatsu, all of which provided training and education for their Indonesian workers.

Tax incentives for companies that allotted more money for staff development and R&D were “justified”, as the companies were contributing to the development of Indonesia’s human resources, the BKPM chief added.

“For example, many [employee training centers] at the provincial level are making little progress because the provincial administrations do not have the funds to finance the system,” Chatib said. “So, why don’t we encourage the private sector to provide training programs instead? It’s a perfect solution.”

He also expressed his hope that the Finance Ministry, the fiscal authority responsible for issuing tax incentives, would respond positively to the suggestion.

Chatib is currently considered by many as the strongest contender to fill the position of finance minister, which will become vacant when the incumbent, Agus Martowardojo, officially moves to Bank Indonesia (BI) on May 23. Therefore, the tax-deductible scheme is likely to be one of his priorities, should he be appointed to take the helm at the ministry.

Meanwhile, economists say that the tax-deductible scheme will help Indonesia avoid the so-called middle-income trap — a situation in which an emerging economy experiences stagnating growth in its gross domestic product (GDP) due to decreasing productivity and a lack of innovation.

Indonesia’s economy expanded 6.23 percent last year — the second-highest growth rate behind China among the G20 group of economies. But observers fear that Indonesia will not be able to retain such robust economic growth
over the longer term as the country’s industries remain heavily dependent on cheap labor and natural resources.

“The implementation of the policy is necessary if we want to boost our competitiveness within ASEAN,” Bank Mandiri chief economist Destry Damayanti said on Wednesday. “Look at the industries in Thailand, Malaysia and the Philippines; they all possess technology and R&D systems that are more sophisticated than Indonesia’s.”

Without any policy breakthroughs to promote greater innovation and human resource development, Indonesia risked seeing its GDP expansion lose pace in the long run, she warned. “What we really need right now is a policy to boost labor productivity in order to make our current economic growth sustainable.”



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