Economic Growth and System of Indonesia

Indonesia has one of the largest economies in Southeast Asia and is one of
the emerging market economies of the world. The country is also a member
of G-20 major economies and classified as a newly industrialized country. It
is the sixteenth largest economy in the world by nominal GDP and is
the eighth largest in terms of GDP (PPP). Indonesia still depends on domestic
market, and government budget spending and its ownership of state-owned
enterprises (the central government owns 141 enterprises) and the
administration of prices of a range of basic goods including, rice, and
electricity plays a significant role in Indonesia market economy, but since the
1990s, 80 percent of the economy has been controlled by private
Indonesians and foreign companies. GDP Annual Growth Rate in Indonesia is
expected to be 5.10 percent by the end of this quarter, according to Trading
Economics global macro models and analysts expectations. Looking forward,
we estimate GDP Annual Growth Rate in Indonesia to stand at 5.10 in 12
months time. In the long-term, the Indonesia GDP Annual Growth Rate is
projected to trend around 5.10 percent in 2020, according to our
econometric models.

Free Trade Agreements:

Indonesia is a member of Association of Southeast Asian Nations (ASEAN) which nowadays has
develop ASEAN Free Trade Area (AFTA) policy in pursue of lowering intra-regional tariff
between the members through Common Effective Preferential Tariff (CEPT) Scheme. The tariff
requires the members to set the tariff between 0-5%. More than 99% products in CEPT Inclusion
List (IL) of ASEAN-6, consisting of Countries such as Brunei Darussalam, Indonesia, Malaysia,
Philippines, Singapore and Thailand have already implement 0-5% tariffs, while in other

countries such as Cambodia, Laos, Myanmar and Vietnam, the tariff is in the stage of
development.

Healthcare Industry
Indonesias healthcare industry continues to grow rapidly and remains a lucrative investment
opportunity for local and global investors. Almost all aspects of the healthcare industry,
including hospitals, medical insurance and medical devices, showed significant increases in sales
over the course of 2015; outperforming various other industries. The latest revisions to the
Negative Investment List have also highlighted the Indonesian governments willingness to
further open up the sector to foreign investor involvement to realize the goals of the universal
healthcare system (BPJS) and to try to stem the tide of Indonesians going abroad for healthcare
services.

Agriculture Sector
Agriculture in Indonesia is one of the key sectors of Indonesian economy. Although the share of
agriculture sector contribution to the national gross domestic product has declined significantly
in the last half century, today it still provides income for the majority of Indonesian households.
In 2013, the agricultural sector contributed to 14.43 percent of national GDP, a slight decline
compared to a decade earlier (2003) which reached 15.19 percent. In 2012, this sector provides
jobs for around 49 million Indonesians, which represents 41 percent of the total labor force in the
country.
Currently around 30 percent of Indonesian land area is used for agriculture purposes. Indonesian
agriculture sector is overviewed and regulated by Indonesian Ministry of Agriculture.
Generally, the agricultural sector of Indonesia comprises two types which corresponds scale:

Large plantations either owned by state or private companies

Smallholder production modes, mostly traditional agricultural households.

The large plantations tend to focus on export commodities; such as palm oil and rubber, while
the small scale farmers focus on horticultural commodities to supply the food consumption of
local and regional population, such as rice, soybeans, corn, fruits and vegetables.

Retail sales sector

Retail sales in Indonesia increased 6.5 percent year-on-year in September of 2016, following a
downwardly revised 11.4 percent gain in the prior month. Indonesian consumers spend their
money across a range of categories including: food 10.9%; motor vehicles and parts 27%;
information and communication goods 23.6%; other household equipment 7.3% and clothing
11.5%. In addition, fuel sales fell more (-13.7 percent compared to -13.1 percent). Retail Sales
YoY in Indonesia averaged 12.54 percent from 2006 until 2016, reaching an all time high of

40.30 percent in January of 2010 and a record low of -26.30 percent in November of 2008. Retail
Sales YoY in Indonesia is reported by the Bank Indonesia.

Interest Rate
In Indonesia the interest rate decisions are taken by Bank Indonesia (Indonesia Central Bank).
Bank Indonesia surprisingly lowered its benchmark interest rate by 25 bps to 7.5 percent in
February 2015 in order to boost growth and bring inflation back to target. It is the first rate cut
since 2011. The central bank now targets inflation between 3 and 5 percent in 2015. Consumer
prices slowed to 6.96 percent in January 2015, from a 12- month high of 8.36 percent in
December 2014.

Natural resources
Indonesia is gifted with diverse natural resources. In energy and mining, Indonesia is the worlds
leading thermal coal exporter, the largest tin exporter and home to deposits of precious metals
such as gold, silver and copper. Located on the Asia Pacific Ring of Fire with over 40% of the
worlds proven geothermal energy reserves, Indonesia has access to huge renewable energy
sources to meet its domestic needs.
The World Economic Forum ranks Indonesias road infrastructure as 83rd out of 142 countries,
rail infrastructure as 52nd out of 123 countries and port infrastructure as 103rd out of 142
countries. Poor levels of infrastructure development are not only holding back Indonesias
growth potential but also poverty reduction progress. The symptoms of more than a decade of
low infrastructure investment include increasing congestion in urban areas, high levels of interisland cargo transport costs, electricity blackouts and low access to improved sanitation.

Tax System:
In Indonesia, taxes are levied under three laws that were introduced in December 1983. These
cover:
1. General Tax Provisions and Procedures

2. Income Tax
3. VAT on goods and services, and Sales Tax on Luxury goods (STLG).
With certain exceptions, With Holding Tax (WHT) is imposed on payments to onshore and
offshore parties, including payments such as dividends, interest, royalties and fees paid for
services. The GOI also collects taxes on land and buildings, stamp duty and import duties. Local
governments collect various other taxes. The official tax year runs from January 1 to December
31. Companies may adopt different year-ends in their FY and may change their financial years
with prior approval. A financial year cannot exceed 12 months for tax purposes. Indonesia has a
self-assessment system under which returns are considered final if not queried by the Indonesian
Tax Office (ITO) within five years. Corporate tax rate is flat 25% which is applicable from FY
2010. Listed companies which meet certain conditions are eligible for a 5% reduction in the
corporate tax rate. A company with gross turnover less than IDR 50 billion (approximately USD
5.5 million) is eligible for a 50% reduction of the corporate tax rate on the proportion of taxable
income which results when IDR 4.8 billion is divided by the gross annual turnover. Where gross
turnover is below IDR 4.8 billion, the reduction applies on all taxable income. Duties are
payable based on the Harmonized System (HS) classification. Duties are based on the cost,
insurance and freight (CIF) value of the imported item and, in general, are imposed at rates of
zero percent to 20 percent for most goods, 25 percent to 80 percent for cars, and 170 percent for
alcoholic drinks. The Indonesian customs procedures are based upon General Agreement on
Tariffs and Trade (GATT) principles.