​Indonesia: The Omnibus Law on Job Creation and Its Impact to Special Economic Zone (SEZ)

Establishing Special Economic Zone (SEZ) is one of the efforts by the Indonesian Government to attract investments by entitling certain facilities and special incentives to the SEZ and its investors. As of October 15th 2020, Indonesia has established 15 SEZs of which 7 of them are Tourism SEZ or SEZ that includes tourism as the zone’s main Business Activities. As Indonesia Government has declared Tourism as one of its leading economic sectors, we have seen a fast-growing tourism sector for the past 5 years (despite negative growth in year 2019 due to Covid-19 pandemic) and expecting more establishments of Tourism SEZ in the near future.

The currently passed Omnibus Law on Job Creation covers SEZ. The Omnibus Law on Job Creation is a major reform effort to make Indonesia more competitive and support the country’s long-term aspiration of becoming a prosperous society. It is hoped to support resilient economic recovery and long-term growth in Indonesia. By removing many restrictions on investment and signaling that Indonesia is friendlier for business, this law is expected help attract investors. In general, the Omnibus Law on Job Creation improves and strengthens the SEZ law.

For some parties, whose plan to propose or currently working on SEZ statute (especially Tourism SEZ) with the Indonesian Government, familiarity with SEZ law and related regulations is needed. The currently issued Omnibus law made several revisions to the existing SEZ law, which thus provide positive impacts to the business environment.

​These are some highlighted revisions of the Omnibus Law on Job Creation to the SEZ law (Law No. 39 Year 2009):
  • Added stipulation on Business Activities in the SEZ, they are: Education, Health (a revision to Article-3 of Law no. 39/2009). This is an expansion to the list of SEZ business activities in the previous law. That the two business activities stipulated in the law provides greater assurance to the establishment of SEZ, especially when a Tourism SEZ plans to combine education and/or health sector into the development plan.
  • The requirement to get support from the Local Government is removed (a revision to Article-4 of Law no. 39/2009). It is a progressive move of the law, as in the previous law the proposing entity (especially proposing Business Entity) is required to get support (or, blessing) from the local Government prior to proposing for SEZ statute.
  • At least 50% land area of the total land area proposed for SEZ status must be acquired by the proposing entity (a revision to Article 4 and 6 of Law no. 39/2009). Previous law does not stipulate this requirement.
  • The Omnibus Law added Article-8A in the SEZ Law which stipulates that, the Central Government and Local Government are obligated to support the SEZ. This provides greater assurance for the SEZ and its investor, of Government support on facilities and incentives.
  • The Business Entity proposing the SEZ Statute shall be appointed as the developer and the management of the SEZ (a revision to Article-10 of Law no. 39/2009). The law cut the process of establishing the developer entity by directly appointing the proposing business entity as the SEZ developer entity. Previous law requires the Provincial Government or Regional Government to establish the SEZ developer entity.
In total, the Omnibus Law revised 27 Articles, removed 5 Articles, and added 7 Articles to the SEZ Law number 39/2009, from Article-1 to Article-48. The revisions and additions improve details and technical to the implementation of the law. Other revisions related and covered in the Omnibus Law includes regulation on business licensing, land acquisition and rights, taxes, foreign human resources, infrastructure financing, etc.

The Omnibus Law on Job Creation amended the Law no. 39/2009. Current Government Regulation on SEZ is the PP no. 1/2020, which was issued in January 2020 overwritten the PP no. 2/2011. The PP no. 2/2011 was amended by the PP no. 100/2012. Following, the revision (or new) Government Regulations, Presidential Regulations, and Ministerial Regulations are underway to be issued, in-sync with the Omnibus Law.
​The Omnibus Law gives positive impacts to the development of tourism SEZ. With the newly issued law, it is expected among others some of the following impacts to the establishment of Tourism SEZ:
  • Expansion of business activities with Education and Health provides assurance and more flexibility for the Tourism SEZ to add attractions in the tourism destination.
  • The requirement of minimum 50% acquired land will ensure realization of a masterplan and continuing development of the tourism destination whose SEZ statute.
  • Appointment by law of SEZ Administrator as the sole licensing authority in SEZ shall improve the speed of business establishments in the SEZ, thus attracting business investment more.
  • The obligation of Local Government to support SEZ by law, provides greater assurance of facilities and incentives from the Local Government. This assurance adds attraction for establishing more business in the SEZ.
  • Added Custom facilities on importing consumptive goods to the non-industrial SEZ provides benefit to the Tourism SEZ, that it adds attractions for establishing more business in the Tourism SEZ.
​All are efforts to add attractions for establishment of businesses which eventually improve regional economy. In turn, it is expected to see more development of tourism destination, through establishment of Tourism SEZ. 
Author​
Iswin Hudiarto
Principal/Lead Consultant
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