Indonesia dangles huge tax breaks to lure investors as new capital deadline looms

Indonesian president Joko Widodo woos investors in the ballroom of the Djakarta Theater, Jakarta, on 18 October. His plan for a new capital in East Kalimantan relies on private investment for 80% of the projected $32bn cost of the new city (Photograph courtesy of Indonesia’s Presidential Secretariat/Muchlis Jr)
The Indonesian government will offer companies tax relief for 30 years and a 350% “super-tax deduction” for spending on research and development if they invest in the proposed new capital city, “Nusantara”, in East Kalimantan province on Borneo island.

Mr. Bambang Susantono, head of the government’s Nusantara National Capital Authority, promised the incentives at a flashy gathering of hundreds of local and foreign investors on 18 October in the ballroom of the Djakarta Theater, Jakarta, Reuters reports.

The plan for the new city, to be built on virgin land amid rainforests, relies on private investment for around 80% of its projected $32bn cost.

It is the flagship project of Indonesian President Joko Widodo, who wants the government moved to the 6.6-hectare government zone with new buildings including for ministries, the State Palace, the House of Representatives, and housing for some 50,000 civil servants and 500,000 residents in place for 17 August 2024, Indonesia’s Independence Day.

Widodo won’t be there, unless …

Widodo himself will not occupy the new presidential residence then unless elections scheduled for 14 February that year are delayed, or the country’s law limiting presidents to two terms is changed. Earlier this year, Widodo quelled such suggestions being made by his ministers.

Currently at the site in North Penajam Paser regency, a dam and access roads are being built.

President Widodo visited the Nusantara site in East Kalimantan on 25 October to inspect progress on the construction of access roads and a dam (Courtesy of the Presidential Secretariat/Laily Rachev)

The idea is that between 2024 and 2045, international business clusters would populate the city’s 200-hectare development zone.

Doubts persist

But many doubt that Widodo’s ambitious vision can be achieved.

Earlier this year, the Indonesian Centre for Strategic and International Studies (CSIS), surveyed 170 informed observers – including researchers, academics, businesspeople, journalists, bureaucrats and lawmakers – and found that around 59% of them doubted the project would materialise owing to uncertainty over funding and management.

In the ballroom on 18 October, Nusantara National Capital Authority chief Bambang Susantono promised investors that the precise regulations governing investor incentives would be published soon, Reuters reported.

Widodo himself urged them to have confidence that Nusantara would go ahead.

“The legal basis is clear, namely Law Number 3 of 2022,” he said. “The Law was passed by 93 percent of the House of Representatives members. If there’s something you’re not sure about, let me know.”

In March this year, Japan’s SoftBank Group said it would not invest in Nusantara, contrary to earlier claims by an Indonesian government minister that the bank would invest $40bn, Reuters reported.

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