REPUBLIKA.CO.ID, NUSA DUA -- The Indonesian government is ready to provide a tax allowance for companies that conduct research and development (R&D) for improving human resources, Finance Minister Chabit Basri has said.
"We are considering a tax allowance for companies conducting R&D for the improvement of human resources," the minister said after opening an international seminar on "Avoiding the Middle Income Trap" here on Thursday.
He said technological innovation-based human resource development is desperately needed to boost Indonesia's productivity and prevent the country from falling into the middle-income trap. Better human resources are also required to turn Indonesia into a high-income and advanced nation.
In pursuit of these goals, the government will provide incentives for companies that encourage technological development and produce value-added products so that the Indonesian economy no longer depends on natural resources and low wages.
"Indonesia will not be the only country providing an incentive for R&D development. We have to prepare the base for the next government so that the economy can supply what is demanded," Chatib added.
However, the minister admitted that the government still faces constraints in formulating a legal basis for a double deduction tax incentive. This is because the law on general tax regulations does not deal with income tax incentives, such as the incentive proposed for R&D development.
"The double deduction tax is not found in our taxation regulations. If the solution is to revise the law, it will take a long time and increases the risk of failure. We are considering an appropriate format so no one gets the impression that we are forcing ourselves to create such an incentive," he added.
The middle income trap refers to a situation under which a country that has become a middle-income nation fails to become a high-income country and experiences stagnation.
Based on international standards, a country is said to have fallen into a middle-income trap if it stays at the middle income level for 42 years. Indonesia is currently classified as a lower middle-income country.
Indonesia, according to OECD forecasts, is expected to shift from a middle-income nation to a high-income or advanced country by 2042. That is much slower than Malaysia, which is expected to make that transition by 2020, China (by 2026) and Thailand (by 2031).
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