Businesses in Indonesia require 266 work hours each year to deal with tax administration. In India, which is notorious for its bureaucratic red tape, 254 hours are required. But in the Maldives, which is not known for its economic strength, only one hour a year is needed.
This statistic should alert the government to the need to streamline and lower corporate taxes if we are to join the ranks of the world’s most economically competitive nations. Such moves are also vital to create new businesses and attract greater foreign investments to Indonesia.
Vismay Sharma, the president director of L’Oreal Indonesia, made the point well. Having recently relocated to Indonesia from India, Sharma said the tax system had much room to improve. He hopes that in the future the tax system can be simpler and more investment friendly. Changes to the tax system might further attract companies from abroad to do business in Indonesia.
Indonesia’s competitiveness is slipping in global terms. Indonesia was ranked 50th of 144 nations in the World Economic Forum’s Global Competitiveness Index for 2012-13, down four places from the previous year.
Indonesia can improve by providing clearer guidelines and refining its dispute resolution procedures. Other business owners and chief executives have echoed Sharma’s points, noting that Indonesia continues to lag other nations in providing clear and consistent implementing regulations and concrete guidance when questions arise.
Indonesia has a large economy and has many factors going in its favor. But in today’s globalized context, being large is not enough — countries must also be competitive. Those with lean and transparent tax systems will prosper more as they will be the ones that will attract the best talent and corporate investors.