Incentives are a form of compensation that is directly related to motivation where the main goal is to increase employee motivation in the organization/company.

Types of incentives :
Three types of incentives according to Garry Dessler (1995) which consist of:
1. Financial Interactive:
Everyone tends to financial incentives because money is the main tool that can help humans meet their basic needs. The forms of giving these incentives are: Bonuses, Commissions, Profit Sharing, and Deferred Payments
2. Non-Finacial Incentive
A reward for employees that is not financial, in this case, is the need for employees who are not in the form of money, for example:
 - Guaranteed workplace.
 - Guaranteed good communication between superiors and subordinates.
 - There are awards for how many exams or recognition of good work results.
3. Social Incentive.
Social incentives are not much different from nonfinancial incentives, but social incentives are more inclined to the circumstances and attitudes of their work colleagues. After seeing the description above about the types of incentives, it can be concluded that the three types of incentives are equally important, namely basically to achieve job satisfaction for employees, because, with job satisfaction, they will carry out their work in earnest.

Coordinating Minister for Economic Affairs Darmin Nasution said, that investors who apply for business licenses through Online Single Submission (OSS) can be informed of what incentives they have for their business. This is considered to make it easier for investors who have had to wait a long time to know whether they can get any incentives and what kind of incentives they receive. Business licenses can be processed with the OSS system or licensing services try to be integrated electronically. The provisions for running the OSS are contained in Government Regulation (PP) Number 24 of 2018 which was published last June 21, 2018.
Business operators who manage to license with OSS will be given a Business Registration Number (NIB) in the form of a barcode as their identity for licensing.

- Exemption from import duties for machinery, goods and production materials
Based on the provisions of Article 26 paragraph (1) letter a, letter b, and letter c of Law Number 10 the Year 1995 concerning Customs and Excise as amended by Act Number 17 of 2006, for imports of machinery, goods, and materials may be granted exemption or relief import duty.
- Tax Allowance
One of these incentives is in the form of income tax relief (PPh) or tax allowance. Other fiscal incentives are prepared relating to the tax holiday. The government will determine the exact amount of reduction in income tax that has been pegged according to the range of 10-100 percent.
The period of the tax allowance facility will also be made equal, no longer listed around 5-15 years. Sri Mulyani said the government would also extend the deadline for granting tax allowances. Currently, the tax allowance can be extended to 20 years. "We will use the benchmark of neighboring countries. In Thailand, for example, it can be up to 30 years," he said.
The third fiscal incentive is related to small and medium enterprises. The government will not make the income of a venture capital company that is part of the profit as an income tax object.
The last fiscal incentive prepared is to provide PPh facilities for research and development activities as well as companies that conduct training for their workforce and vocational training. "The activity is allowed to do higher tax deductions than they spend, it can be 200 percent," Sri Mulyani said.
- Tax Abolition
GOVERNMENT plans to roll out more economic stimulus in the form of fiscal incentive policies whose main goal is to attract direct investment. Some incentives that are being formulated include the abolition of Article 22 Income Tax (PPh) and Sales Tax on Luxury Goods (PPnBM) in the property sector.
In the financial sector, tax incentives are also being studied in the form of equalization of income tax rates for bond interest, real estate investment funds (DIRE), infrastructure investment funds (Dinfra), and limited investment mutual funds (RDPT). Of course, it needs to be explored whether the policy is indeed urgent, needed, and needed by stakeholders.
The increase in various fiscal incentives will directly increase the amount of tax expenditure. However, if the policy is right on target, it will certainly encourage the movement and growth of the economy.

Investment Incentives to Boost Industry Sect

1.     Business Expansion

   A. Tax allowance;

   B. Exemption or relief of import duty on capital goods, machinery or equipment for production purposes that can not be produced domestically;

   C. Exemption or relief of import duty on raw materials or auxiliary material for production purposes for a certain period and certain conditions;

   D. Exemption or suspension of VAT on the import of capital goods or machinery or equipment for production purposes that have not been produced domestically for a certain period;

   E. Accelerate depreciation or amortization (part of the tax allowance); and

   F. Property tax relief, especially for certain business sectors in certain regions;

   G. Combine with Online Single Submission (OSS).

2.     Pioneer Industries

   A. Tax a holiday of corporate income tax in a certain amount and time.

3.     Special Economic Zone

   A. No collection of VAT and Luxury Goods Sales Tax (PPnBM);

   B. Customs tax exemption;

   C. Tax Allowance and Tax Holiday;

   D. Suspension of Import Duty;

   E. 0% Import Duty for goods produced using local components of a certain level.

4.     Industrial Zone

   A. VAT exemption on import or delivery of capital goods;

   B.    Import Duty exemption on machinery/goods/materials,

   C. Tax Allowance and Tax Holiday.

5.     Free Trade Zones and Ports

  Exemption of:

   A. Import Duty;

   B. VAT;

   C. Luxury Goods Sales Tax (PPnBM);

   D. Customs duty.

6.     Micro, Small, Medium Enterprises (MSMEs)

   A. Decreasing MSMEs Tax from 1% to 0.5% of gross revenue.

7.     E-commerce

   A.  Sales from customs areas for non-small entrepreneurs through the market place will be subject to 0.5% income tax and 1% VAT

   B. Sales from customs areas for small entrepreneurs through the market place will be subject to 0.5% income tax


All investment projects of Foreign Direct Investment or FDI, as well as Domestic Direct Investment or DDI (Penanaman Modal Dalam Negeri or PMDN) projects which are approved by BKPM or by the office of investment in the respective districts, including existing FDI and DDI companies expanding their projects to produce a similar product(s) above 30% of installed capacities or diversifying their products, will be granted the exemption from Import Tax so that the final tariffs will become 0%. This facility applicable to:

1. The importation of capital goods including machinery, equipment, and auxiliary equipment for an import period of 2 years, started from the date of the decision determined.

2. The importation of goods and materials or raw materials regardless of their types and composition, which are used as materials or components to produce finished goods or to produce services for 2 years of full production (accumulated production time).

3. The importation of machines, goods, and materials which:

  - Are not produced in Indonesia.

  - Are produced in Indonesia but they don’t meet the required specifications.

  - Are produced in Indonesia but the quantity is not sufficient for the need of the industry.

The exemption of import tax will also be granted to the importation of capital goods of electricity for an import period of 2 years and can be extended by a maximum of 1 year. This facility is not applicable for transmission, distribution, support services, and repairing equipment.

For the importation of goods in terms of Contract of Work or CoW (Kontrak Karya or KK) or Coal Mining Business Work Agreement (Perjanjian Karya Pengusahaan Pertambangan Batubara or PKP2B) will be granted the exemption and/or relief from import duty based on the contract.

The application can be requested by attaching a recommendation letter from Directorate General of Mineral and Coal, Ministry of Energy and Mineral Resources of the Republic of Indonesia.


Based on the latest Government Regulation No. 18 of 2015, about Income Tax facilities for investment in certain business sectors and/or in certain locations, the domestic and foreign investors will be granted tax allowances in a certain sector and/or area. This latest regulation replaces its previous preceding Government Regulation No. 52 of 2011.

Facilities provided by the new Government Regulation No. 18 of 2015 are:

1. Reduction of net income by 30% of the total investment in the form of tangible fixed assets, including any land that is used for the business-main activities shall be charged for 6 years, respectively at 5% per year calculated from the commencement of commercial production.

2. Accelerated depreciation on tangible assets and amortization of intangible assets acquired in the framework of new investment and/or business expansion, with the useful lives and depreciation rates as well as amortization rates.

3. The income tax on dividends paid to any non-resident a taxpayer other than the form of a permanent establishment in Indonesia in the amount of 10% or lower tariffs by any applicable double taxation treaty.

4. Compensation for losses that are later than 5 years but not more than 10 years, for:

  - A company located in the Industrial Area and/or Bonded Zone.

  - A company operating in construction development for the infrastructure sector.

  - A company that uses domestic raw materials at least 70%.

  - A company that is absorbing 500-1,000 of domestic workforces.

  - A company that is conducting research and development (R&D).

  - A company that is doing a re-investment.

  - A company that exports at least 30% of its sales value.

For detailed information on the list of business sectors that are eligible for tax allowance, please refer to Attachment I & II of Government Regulation No. 18 of 2015. There are 66 business sectors listed in Attachment I and 77 business sectors listed in Attachment II.


For new applicant or application of new project for tax allowance, listed below is the framework on the application procedures:

1. Corporate Taxpayer (company) will need to apply to tax allowance incentives directly by attaching the supporting documents.

2. FO of BKPM OSS-C, which consists of representatives from the 3 main government bodies: BKPM, Directorate General of Tax and technical ministry (according to the applicant business sector) will receive and process the application.

3. Once the application assessment is completed, the BKPM will arrange for a ‘Clarification Meeting’ between the company and a representative from the Directorate General of Tax. The meeting is held for:

  - Presentation on the project and business plan that is intended to receive the tax allowance facility.

  - Inquiries by the technical ministry(s), if needed, to provide further clarification in regards to the presentation and/or application.

4. Based on the clarification meeting, one (or more) of the following will occur:

  - Ministry will issue a ‘Certificate of Compliance of Quantitative Requirements’.

  - BKPM will issue Change in Principle License (IP) [if needed].

  - The applicant will be required to furnish additional supporting documents.

5. In the case that clarification and document are completed, BKPM will issue ‘Receipt of Application’ and schedule for a ‘Trilateral Meeting’.

6. Trilateral Meeting is held for the final discussion in regards to the tax allowance application, to be proposed by BKPM to the Ministry of Finance of the Republic of Indonesia (with Directorate General of Tax). The Trilateral Meeting will be headed by BKPM officials and attended by representatives from BKPM, Ministry of Finance of the Republic of Indonesia, and Directorate General of Tax.

7. The Trilateral Meeting produces an agreement that is recorded in meeting minutes and decision from the Chairman of BKPM related to one of the following outcomes:

  - Approval on the tax allowance application to be submitted to the Ministry of Finance of the Republic of Indonesia.

  - Rejection of the tax allowance application.

  - Pending decision on the tax allowance application.

8. In the case of the pending decision on the tax allowance, BKPM will arrange for the ‘Extension Trilateral Meeting’. At the end of this meeting, the decision will need to be issued related to:

  - Approval on the tax allowance application.

  - Rejection of the tax allowance application.

9. The outcome of the Trilateral Meeting and the arrangement for the Extension Trilateral Meeting will need to be issued 15 days from the Clarification Meeting.

10. In the case of approval on the tax allowance application, Chairman of BKPM will issue ‘Recommendation Letter’ on the grant of tax allowance to the Ministry of Finance of the Republic of Indonesia, within 3 working days since the Trilateral Meeting or Extension Trilateral Meeting.

11. In the case of rejection on the tax allowance application, Chairman of BKPM will need issue Rejection Letter, within 3 working days since Trilateral Meeting or Extension Trilateral Meeting.

Note: The following procedures are the simplified framework of the tax allowance application procedure. The complete details of it are available in the Regulations of Chairman of BKPM No. 18 of 2015.


There are many incentives provided for exporting manufactured products. Some of these incentives are:

1. Restitution (drawback) of import on the importation of goods and materials needed to manufacture the exported finished products.

2. Exemption from Value Added Tax or VAT (Pajak Pertambahan Nilai) and Sales Tax on Luxury Goods and materials purchased domestically, to be used in the manufacturing of the exported products.

3. Can import raw materials required regarding the availability of comparable domestic products.


The industrial companies which are located in the bonded areas are provided with many incentives as follows:

1. Exemption from import duty, excise, income tax of imported goods (Income Tax Article 22), VAT on Luxury Goods, of the importation of capital goods and equipment including raw materials for the production process.

2. Allowed to divert their products amounted to 50% of their export (in term of value) for the final products, and 100% of their exports (in term of value) for other than final products to the Indonesian customs area, through normal import procedures including payment of customs duties.

3. Allowed to sell scrap or waste to Indonesian custom the area as long as it contains at the highest tolerance of 5% of the amount of the material used in the production process.

4. Allowed to lend their machinery and equipment to their subcontractors located outside bonded zones for no longer than 2 years to further process their products.

5. Exemption of VAT and Sales Tax on Luxury Goods on the delivery of products for further processing from bonded zones to their subcontractors outside the bonded zones or the other way around as well as among companies in these areas.


The companies operating in the Free Trade Zone or FTZ (Zona Bebas Perdagangan) areas enjoy several incentives such as exemption of import duty and excise, import-related taxes (VAT, Withholding Tax/ Income Tax) not collected. Additionally, FTZ also offerS faster issuance on investment-related licenses and immigration clearance in terms of foreign employees. The limitation for operating in FTZ is that exporting goods out of FTZ into the Indonesian customs area will apply the tax duty and excise back on the previously duty exempted goods.


According to the Regulation of the Ministry of Finance No. 159/PMK.010/2015 and the Regulation of the Chairman of BKPM No. 19 of 2015 the applicant or company should meet the following criteria:

1. The company was established as an Indonesian business entity after 15th August 2011.

2. Having a new investment plan which has an institution of no less than IDR 1,000,000,000,- (trillion Rupiah).

3. Submitting a statement of ability to place the fund in Indonesia banking of not less than 10% of the total investment plan as referred to in letter point, 2 and such fund shall not be withdrawn before the commencement of investment realization implementation.

4. Included in the ‘Pioneer Industry’ such as :

  - The upstream metal industry.

  - Oil refining industry.

  - The industry of organic basic chemicals derived from oil and natural gas.

  - The industry of machinery that produces industrial machinery.

  - Processing industry of agricultural, forestry, and fishery products.

  - The industry of telecommunications, information, and communication.

  - Marine transportation industry.

  - Processing industry which is a major industry in the Special Economic Zone or SEZ (KEK); and/or Economic infrastructure in addition to the use of Government and Business Entity or Public-Private Partnership (PPP/ KPBU) Scheme.

It is, then, eligible for the following incentives:

1. An exemption from corporate income tax for a period from 5 and up to 15 years, beginning from the first date of commercial production.

2. Corporate Income Tax Reduction shall be granted not exceeding 100% and not less than 10% of the total amount of payable Corporate Income Tax.