Economy and Business

China Built Railway Encounters Obstacle

West Bandung Regent Aa Umbara Sutisna has not issued a permit for the construction of the Jakarta-Bandung high-speed railway, pending the complete payment of compensation for the land of residents taken for roads to support the project. The regent questioned the commitment of PT Kereta Api Cepat Indonesia China (KCIC), a consortium authorized to build the railway, about the payment for land owned by residents of Cikalongwetan and Cipeundeuy. He referred to payment for the land acquired for the expansion of roads, namely those connecting Cikalongwetan to the districts of Cisarua and Cipeundeuy. He demanded that KCIC support the high-speed railway once it begins operations. Aa said he did not want to disrupt the construction of the railway, but he stressed he would not issue a permit if KCIC does not show its commitment. Aa said he did not care if he was accused of not supporting the central government’s program because, as he explained, his stance was part of a move to protect the interests of West Bandung’s people. (Kompas)

$60 Oil for 2020 Budget

The Energy and Mineral Resources Ministry and House of Representatives Commission VII, which oversees energy policy, have agreed to assume an Indonesian Crude Price (ICP) of US$60 per barrel for the 2020 state budget. The decision was made at a recent hearing, in which the two parties also agreed on the oil and gas lifting target at 1.893 million barrels of oil equivalent per day (BOEPD). Cost recovery for 2020 is seen at $10 billion to $11 billion. Meanwhile, the amount of subsidized fuel was put at 15.87 million kiloliters (kl) and 7,000 million tons of liquefied petroleum gas (LPG) distributed in 3-kilogram kg canisters. The ministry and the House commission also agreed to allocate Rp 58.62 trillion ($4.15 billion) for electricity subsidies in 2020, down from Rp 59.32 trillion this year, but Energy and Mineral Resources Minister Ignasius Jonan said the amount of the subsidy would be discussed further.

Concerns Over Tax Revenues

Finance Minister Sri Mulyani Indrawati has expressed concern about a slowdown in tax revenue this year. By the end of May, the state had collected Rp 727.7 trillion (US$51.52 billion) from taxes and customs, or 31.9 percent of the full-year target stipulated in the 2019 state budget. That marked a year-on-year (yoy) increase of only grew 5.7 percent, far lower than the yoy growth rate of 14.5 percent measured in the same period last year. The minister appeared particularly worried that income tax from the oil and gas sector only grew 2.4 percent to Rp 496.6 trillion. “This is a critical point. We have to closely observe signs of the economic, whether it is steadily strengthening or weakening,” she said on Friday, as quoted by Therefore, she added, the ministry was more cautious in managing the state budget, particularly revenue collection, because the growth in non-tax revenue was also weakening at 8.6 percent, lower than 18.1 percent growth in the same period last year.

How To Tax Tech Titans

The government is exploring options on how to tax tech giants after the Group of 20 ( G20 ) affirmed its commitment in its communique to agreeing to a set of rules on digital taxation by next year. The Finance Ministry’s Taxation Directorate General international taxation director, John Hutagaol, said the government was preparing regulations on the issue. The government is also awaiting a consensus that is set to be reached by 2020 hopefully after a report issued by the Inclusive Framework on Base Erosion Profit Shifting (BEPS). The Inclusive Framework on BEPS is a working group under the Organization for Economic Cooperation and Development (OECD) that brings together over 125 countries and jurisdictions to fight against global tax avoidance. “[We] are preparing regulations with a view to expanding the definition of permanent establishment and antitax-avoidance rules — such as the Special Anti-Avoidance Rule [SAAR] and General Anti-Avoidance Rule [GAAR] in responding to the latest developments in the digital economy,” said John.

BI Weighs Rate Cut

Indonesia’s central bank, one of the most aggressive interest rate hikers in Asia last year, is taking its time to lower rates. Even with the U.S. Federal Reserve signaling it may ease soon and peers including India, the Philippines and Malaysia already cutting, Bank Indonesia is worried about scaring off foreign investors if it moves too much or too fast. It needs foreign inflows to support the rupiah and to fund the current account deficit, two of the economy’s key vulnerabilities. “If we cut the rate too quickly, external stability will be hit, especially if trade tensions remains like now. Also if we cut too deeply,” Onny Widjanarko, a spokesman for the central bank, said in Jakarta. “We are trying to maintain the attractiveness of our yield for investors.” Governor Perry Warjiyo has said a rate cut is just a matter of timing and officials are watching the economic data closely. Consumer-price figures due on Monday should give more clues about how soon they could move, with economists in a Bloomberg survey forecasting inflation probably eased to 3.2% in June from a year ago. (Bloomberg)

World Bank Reports 5.1 Q1 Growth

Indonesia’s gross domestic product (GDP) grew 5.1 percent in the first quarter, consistently within a narrow range of 4.9-5.3 percent for the last 14 quarters, according to the World Bank’s June 2019 Indonesia Economic Quarterly released on Monday.“Despite capital outflows from emerging markets in 2018 that were larger than during the ‘taper tantrum’ in 2013, Indonesia’s economy remains strong, which helped reduce poverty to a record low of 9.7 percent in September 2018,” said Rodrigo A. Chaves, World Bank country director for Indonesia and Timor-Leste in a press statement. “To accelerate growth from current levels, Indonesia needs further and sustained structural reforms, while maintaining solid fiscal and monetary policies.” (Jakarta Post)

Toyota To Build Electric Vehicles in Indonesia

Toyota Motor Corp plans to invest $2 billion to develop electric vehicles (EVs) in Indonesia over the next four years, starting with hybrid vehicles, Indonesia’s coordinating ministry for maritime affairs said. “From 2019 to 2023, we will progressively increase our investment to 28.3 trillion rupiah ($2 billion),” Toyota president Akio Toyoda was quoted as saying in a statement released by the ministry on Thursday. The Japanese car maker said this month that it aimed for half its global sales to be from electric vehicles by 2025, five years ahead of schedule, and will tap Chinese battery makers to meet the accelerated global shift to electric cars. Indonesia, the region’s largest economy, has plentiful reserves of nickel laterite ore, a vital ingredient in the lithium-ion batteries used to power EVs, and has been making a push to attract foreign carmakers.