9 August 2023
Clients’ Highlights – August 2023
Local Content Requirements – Impact to FDI
Local Content and Its Design
Local content requirements are put in place to push the use of domestic resources production processes within various sectors; these requirements mostly found in industrial and manufacturing sectors.
The underlying thoughts of local content requirements are to boost the nation’s economic by pushing higher engagement of local resources, and to eventually increase employment within the nation.
Local content is commonly calculated based on the cost of material used directly into the production, cost of employment, and where relevant the overhead costs involved.
Sample of local content imposed by the Indonesian government on electric vehicles/battery electric vehicles (BEV):
Two or three wheel BEVs
Year 2019 – 2023: 40%
Year 2024 – 2025: 60%
From and after year 2026: 80%
Four or more wheel BEVs
Year 2019 – 2021: 35%
Year 2022 – 2023: 40%
Year 2024 – 2029: 60%
From and after year 2030: 80%
Please refer to our complete review of the BEV industry here.
The calculation method of the local content requirements is subject to the respective regulation although the ambiguities around the calculation method remain and continuously being discussed by the respective regulatory authorities. It is worth to note that the local content requirements would be prescribed at the ministerial level and therefore different views may exist.
Under the law, failure to comply to the local content requirements would lead to sanctions ranging from written warning to revocation of business license.
Impact to Foreign Direct Investment in Indonesia
Although the applicability of local content requirements does not distinct between foreign investors and domestic investors, in general, foreign investors struggle to comply with the local content requirements due to various reasons from instability of local resource to the lack of local expertise in certain sector.
There have been various discussions on the effectiveness of the local content requirements to boost the nation’s economic growth against the impact of it to the attractiveness of Indonesia investment landscape for foreign investors.
Regardless of the sanction prescribed under the regulations in relation to the non-compliance to the local content requirements, to date, we have seen the regulatory authorities taking different approach when being faced by non-compliance to the local content requirements. It appears that it is the government’s intention to keep a high level of compliant practice in the market while taking into account the struggle experienced by the foreign investors.
Bearing in mind MNP’s experiences to date, it is our firm practice to firstly discuss with the relevant regulatory authorities when the question of compliance to the local content requirements being raised.
Subject to the severity of the matter and the degree of non-compliance, being guided by the regulators’ understanding of the requirements would be the ideal approach as this could give the opportunity to educate the regulators of the business aspects, and guide the regulators to align on a favorable approach such as granting an extension for compliance to the local content requirements.
Download PDF version here.
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MURZAL & PARTNERS
For more information, please reach us at Murzal & Partners Law Firm to:
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The foregoing material is the property of MNP and may not be used by any other party without prior written consent. The information herein is of general nature and should not be treated as legal advice, nor shall it be relied upon by any party for any circumstance. Specific legal advice should be sought by interested parties to address their particular circumstances.
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Read article about ChatCPT – Privacy Point of View here.
Indonesian version
9 Agustus 2023
Client’s Highlights – Agustus 2023
Tingkat Komponen Dalam Negeri – Dampak terhadap FDI
Komponen Dalam Negeri dan Desainnya
Persyaratan Tingkat Komponen Dalam Negeri (TKDN) diberlakukan untuk mendorong penggunaan proses produksi sumber daya dalam negeri di berbagai sektor; Persyaratan ini banyak ditemukan di sektor industri dan manufaktur.
Pemikiran yang mendasari persyaratan TKDN adalah untuk meningkatkan ekonomi bangsa dengan mendorong keterlibatan yang lebih tinggi dari sumber daya lokal, dan pada akhirnya meningkatkan lapangan kerja di dalam negeri.
TKDN umumnya dihitung berdasarkan biaya bahan yang digunakan langsung ke dalam produksi, biaya tenaga kerja, dan jika relevan, biaya overhead yang terlibat.
Contoh TKDN yang diberlakukan oleh pemerintah Indonesia pada kendaraan listrik/kendaraan listrik baterai (BEV):
BEV roda dua atau tiga
Tahun 2019 – 2023: 40%
Tahun 2024 – 2025: 60%
Dari dan setelah tahun 2026: 80%
BEV roda empat atau lebih
Tahun 2019 – 2021: 35%
Tahun 2022 – 2023: 40%
Tahun 2024 – 2029: 60%
Dari dan setelah tahun 2030: 80%
Silakan lihat ulasan lengkap kami tentang industri BEV di sini.
Metode penghitungan TKDN tunduk pada peraturan masing-masing meskipun ketidakjelasan seputar metode penghitungan tetap ada dan terus didiskusikan oleh otoritas regulasi masing-masing. Perlu dicatat bahwa persyaratan TKDN akan ditentukan di tingkat menteri dan oleh karena itu pandangan yang berbeda mungkin ada.
Berdasarkan undang-undang, kegagalan untuk memenuhi persyaratan TKDN akan menyebabkan sanksi mulai dari teguran tertulis hingga pencabutan izin usaha.
Dampak terhadap Foreign Direct Investment di Indonesia
Meskipun penerapan persyaratan TKDN tidak berbeda antara investor asing dan investor dalam negeri, pada umumnya investor asing berjuang untuk memenuhi persyaratan TKDN karena berbagai alasan mulai dari ketidakstabilan sumber daya lokal hingga kurangnya keahlian lokal di sektor tertentu.
Telah dilakukan mengenai efektifitas persyaratan TKDN untuk mendorong pertumbuhan ekonomi negara terhadap dampaknya terhadap daya tarik lanskap investasi Indonesia bagi investor asing.
Terlepas dari sanksi yang ditentukan dalam peraturan sehubungan dengan ketidakpatuhan terhadap persyaratan TKDN, hingga saat ini, kami telah melihat pihak berwenang mengambil pendekatan yang berbeda ketika menghadapi ketidakpatuhan terhadap persyaratan TKDN. Nampaknya niat pemerintah untuk mempertahankan praktik kepatuhan tingkat tinggi di pasar sambil mempertimbangkan perjuangan yang dialami oleh investor asing.
Mengingat pengalaman MNP hingga saat ini, langkah pertama firma kami adalah berdiskusi dengan pihak berwenang yang terkait ketika pertanyaan tentang kepatuhan terhadap persyaratan TKDN muncul.
Tunduk pada beratnya masalah dan tingkat ketidakpatuhan, dipandu oleh pemahaman regulator tentang persyaratan akan menjadi pendekatan yang ideal karena hal ini dapat memberikan kesempatan untuk mendidik regulator tentang aspek bisnis, dan membimbing regulator untuk menyelaraskan pada pendekatan yang menguntungkan seperti memberikan perpanjangan untuk kepatuhan terhadap persyaratan TKDN.
