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Many have argued that the government needs to take a long-term view of fiscal incentives to boost investment in key sectors. This means foregoing short-term returns from tax revenue in exchange for future growth.

We are pleased that the government is beginning to come around to this point of view. It says it is now prepared to give tax breaks to investors pledging at least Rp 1 trillion ($117 million) in investments in sectors including mining and energy.

The plan will cover base metals, oil refining, petrochemicals, renewable energy, machinery and telecommunications equipment. According to Finance Minister Agus Martowardojo, 128 types of industries would be considered for the tax allowance. The tax holiday would exempt investors from paying taxes for up to 10 years after the start of their commercial operations, he added.

The allowance is an incentive that will deduct taxable net revenue for as much as 30 percent of the investment over six years (5 percent per year). It is clear that the tax holiday will be crucial to boosting foreign direct investment, as it will put Indonesia at the same level as other countries in the region. This was reaffirmed by Gita Wirjawan , chairman of the Investment Coordinating Board (BKPM), when he said that the incentives would spur investment in Indonesia.

Gita said some investors that warranted consideration for the tax holiday were tire manufacturer Hankook (with a $353 million investment), the petrochemical division of Lotte Group ($5 billion), steelmaker Posco ($6 billion) , Kuwait Petroleum ($6 billion to $7 billion), polyester producer Indorama (Rp 5 trillion to Rp 7 trillion) and US heavy machinery maker Caterpillar (Rp 5 trillion).

If Indonesia wants to compete with its regional rivals, it must offer investors incentives they cannot refuse. This must be another component of the financial and fiscal package the government offers foreign investments. It is critical that we do not waste this opportunity to make a lasting difference.

We fully support the government’s foresight in offering tax incentives and urge it to extend the initiative to other industries where investment is sorely needed. This is one of the most effective and fastest ways to achieve higher economic growth.