Factbox-Indonesian Parliament Passes Decree to Replace 2020 Jobs Law

JAKARTA (Reuters) – Indonesia’s parliament on Tuesday passed into law an emergency decree on jobs and investment, eliminating legal uncertainty hanging over measures championed by President Joko Widodo to spur business sentiment in Southeast Asia’s largest economy.

The decree was tabled in December 2022 to replace an almost identical 2020 law that the Constitutional Court ruled was flawed due to inadequate public consultation.

Here is a final list of Indonesia’s rules governing jobs and investment:

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The 2020 law loosened rules on mandatory severance pay and paid leave and the newly passed law cements those changes.

It also revises other rules, like the formula to calculate the yearly rise in minimum wage. In the 2020 law, the annual hike was pegged to economic growth or inflation, but now the increment will be set based on economic growth, inflation and another unspecified variable.

The new law also limits outsourcing to certain sectors, something that was not regulated in the 2020 legislation.

These changes have been criticized by both labor and business groups due to a lack of details.

SOVEREIGN WEALTH FUND, LAND BANK

The 2020 law was the foundation of the formation of Indonesia’s sovereign wealth fund and a state-run land bank that allocates land for strategic projects.

The new law strengthens the legal basis for those institutions, which were officially launched in 2021.

BUSINESS PERMITS AND REGULATIONS

The new law reinforces changes brought in by the 2020 law that eases business permit applications.

Businesses are considered low-risk do not need to apply for a permit before operating, as long as they register with the government, while medium-risk ones can obtain a permit after following a set of standards.

Only high-risk investments must obtain a permit and produce an environmental study.

Following the passage of the 2020 law, the government has done away with a list of sectors that were off-limits for foreign participation, known as the “negative investment list”. It has been replaced with a “priority list”, which offers incentives such as tax allowances or tax breaks on investments in some industries.

Sectors such as land transportation, ship vessel traffic information systems and flight navigation were among those opened to foreign firms.

Some sectors continued to be restricted under the new list, such as manufacturing of alcoholic drinks, traditional shipbuilding, batik, and traditional medicine and cosmetics.

The new law also removes legal uncertainties surrounding the priority list.

(Reporting by Stefanno Sulaiman; Editing by Gayatri Suroyo, Kanupriya Kapoor)

Copyright 2023 Thomson Reuters.

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