Warp Speed: Implementing Indonesia’s Job Creation Law

A weighty body of law takes shape

 

The Indonesian government has signed into effect the implementing regulations for its massive and complex job creation law, which means the government is on track to meet the ambitious targets set in the law.

The implementation measures in the Indonesian system are the crux to a new law, and can often be complicated and/or delayed. In this instance progress is moving very swiftly.

President Joko Widodo is making the Job Creation Law a signature component of his second and final term as a tool to cut red tape and encourage investment. He has persisted with the laws despite ongoing criticism that it will adversely affect workers’ rights.

Given the breadth, scope and reach of this law, together with the pace of its roll out, there can be little doubt that the impact of it will be a key feature of his eventual legacy.

From personal experience in working with a number of Indonesian and Australian governments, it’s very clear that drafting and passing all these regulations so soon after the law itself was passed was a truly herculean achievement. Even to get one such implementing regulation passed through the myriad of consultative processes together with interdepartmental committee negotiations, followed by ensuring legal compliance with other regulations and statutes, can take months.

This Job Creation Law contains more than 1,100 pages. Its passage amended approximately 80 other laws affected. Each amended law requires government or presidential regulations to bring about the changes.

Keeping to its mandate, the Government has now released 45 government regulations and a further four presidential regulations. Many of these regulations also included several attachments that further flesh out their operationalisation. Collectively all of this body of law from legislation, including the Work Creation Law, to the Regulations and all attachments, amounts to some 17,000 pages. The date of enactment for all of these implementing regulations and attachments was 2 February 2021, precisely within the 3 month deadline set in the law.

The Scope and Limit of coverage

The reach of the changes being affected by this omnibus law is vast. It includes changes to taxation and revenue raising, management of state enterprises through to village enterprises, management of state functions such as managing the new risk based business permits system and revision to the investment regime, spatial planning as well as wages, conditions and other labour market reforms.

There are also numerous regulations focused on sectoral reform in transport, primary and secondary industries, health, tourism, telecommunications and the mining and energy sector as well as strategic issues such as special economic zones, free trade and port zones.

One sector, which was effectively quarantined from reform, was the education sector.  The initial draft of the Work Creation Law did include some deregulation of the education sector such as devolving elements of curriculum to universities.

“These tentative steps towards reform of the education system were ultimately rejected.”

Consequently the Ministry will continue to exercise considerable oversight over core and compulsory curriculum materials which includes the Indonesian language, religion, civics and Pancasila and also over the endorsement of fields of study at tertiary level.

Please find relevant supplementary materials as follows:

The relevant article concerning education and its elucidation

Full list of the implementing regulations

Full list of the laws changed as a result of the enactment of this omnibus law

The driving force

A key driving force underlying the movement that has driven the development of this law was a general frustration, certainly by the President, that the country seemed to be suffering from a ceiling of growth at approximately five percent a year. The President has hoped in his first term to see growth move towards seven percent. The five percent figure achieved was believed to be way below potential.

Among the factors seen as inhibiting the achievement of faster rates of growth was the complexity of administrative rules and procedures. The President was also known to be frustrated that very little of the investment in manufacturing being redirected out of China was finding its way to Indonesia.

This trend was often reflected in the comparative findings identified annually through the World Bank’s Ease of Doing Business. As noted in earlier reports while Indonesia had made some progress in this area during the past decade, progress stopped by 2018. Meanwhile other key economies in the Asia Pacific region continued to make further progress, thereby leaving Indonesia an even less attractive location for conducting business. Indeed among all measures on the Ease of Doing Business index Indonesia performs worst of all on the issue of the ease of setting up a business, barely rating above its second worst factor, namely the capacity to legally enforce contracts.

The first of a series

Given the importance of this law, we’ll be examining some of the other industry areas affected by the laws that are of specific interest to AIC stakeholders. These include sectoral issues such as rail and shipping, agriculture and health/hospitals.

Other areas that could be examined include the reforms to create risk based permits management, the new investment regulations together with the development of Indonesia’s new Investment Management Institute, often referred to as a sovereign wealth fund.

If you have other areas of particular interest among the vast array of reforms being enacted, please do let us know.

Kevin Evans has been a student of Southeast Asia in general and Indonesia in particular for 35 years. During the 25 years he has lived in Indonesia, he has worked variously as a diplomat, stock broker, academic and NGO activist.

Ilustrasi omnibus-law, FOTO/IST

Picture of Kevin Evans

Indonesia Director
The Australia-Indonesia Centre

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Article 65 Job Creation Law (Law 11 of 2020)

Originally Paragraph 12 of the draft Job Creation Law referred to several matters governed by the portfolio of education and culture. The final Law now only makes residual references to the education subsection of that paragraph are as follows:

Article 65

  1. Implementation of permits in the education sector can be undertaken through a Business Permit as intended by this Law.
  2. Further provisions for implementing permits to the education sector as intended in clause (1) will be regulated in a Government Regulation.

In the elucidation of the Law there is some clarification of the intention of this article as follows:

Article 65

  1. The intention of the word “can” {in Clause 1} in this provision in essence means that the obligation to hold a Business Permit is not applicable in the Education sector except for formal education institutes in special economic zones that are regulated specifically.This Law follows the principle that management of an Education unit is not-for-profit in nature such that it can not be equated with managing a business activity. As such treatment, conditions and processes for permits needed by an Education unit for its operations can not be the same as treatment, conditions and processes for Business Permits for activities that are for-profit in nature.Permits provisions for Education units continue to follow the regulatory provisions in the field of Education:
    1. Law Number 20 of 2003 on the National Education System;
    2. Law Number 12 of 2012 on Higher Education;
    3. Law Number 14 of 2005 on Teachers and Lecturers;
    4. Law Number 20 of 2013 on Medical Education;
    5. Law number 18 of 2019 on Pesantren (Islamic Boarding Schools)

These Laws are not regulated under this Law and as a result of this there is no obligation for Education units including non-formal Education units that are managed by the communities to follow the permits processes through the Business Permit system as regulated in this Law.

The provision of this article extends space for Education unit managers to voluntarily be able to make use of the Business Permits system to, among other things, to process conformity to spatial planning, environmental agreement, and building standards. For managing an Education unit the existing processes are sufficient such that it is not undertaken through the Business Permit system as regulated under in Law.

As an example that for the establishment of a pesantren has been regulated in Law 18 of 2019 on Pesantren which regulates that the establishment of a pesantren is only with the registration to the minister who has carriage of government matters in the field of religion. Consequently in the establishment of a pesantren an obligation to make use of the Business Permit system in this Law is not valid.

  1. Sufficiently clear.

The full list of implementing regulations are below:

Number Government Regulation regarding:
No. 5 / 2021 Implementation of Risk Based Business Permits
No. 6 / 2021 Implementation of Business Permits in the Regions
No. 7 / 2021 Facilitation, Protection and Empowering Cooperatives and Micro, Small and Medium Enterprises
No. 8 / 2021 Paid Up Capital as well as Registering, Establishing, Amending and Dissolving a Business that Meets the Criteria of a Micro and Small Enterprise
No. 9 / 2021 Taxation Treatment to Support Ease of Business
No. 10 / 2021 Regional Taxes and Fees in Supporting Ease of Business and Regional Service Delivery
No. 11 / 2021 Village Owned Enterprises
No. 12 / 2021 Change to Government Regulation Number 14 of 2016 regarding Implementation of Housing and Settlement Zones
No. 13 / 2021 Implementation of Apartments
No. 14 / 2021 Change to Government Regulation Number 22 of 2020 regarding Implementing Regulations for Law Number 2 of 2017 regarding Construction Services
No. 15 / 2021 Implementing Regulations for Law Number 6 of 2017 regarding Architecture
No. 16 / 2021 Implementing Regulations for Law Number 28 of 2002 regarding Constructed Buildings
No. 17 / 2021 Fourth Change to Government Regulation Number 15 of 2005 regarding Toll Roads
No. 18 / 2021 Rights to Management, Land Rights, Apartment Units and Registering Land
No. 19 / 2021 Implementation of Procuring Land for Development for Public Interest
No. 20 / 2021 Regularising Zones and Abandoned Lands
No. 21 / 2021 Implementation of Spatial Planning
No. 22 / 2021 Implementation of Protection and Management of the Environment
No. 23 / 2021 Implementation of Forestry
No. 24 / 2021 Mechanisms for Applying Administrative Sanctions and Mechanisms for Receiving Non Tax State Revenue Sourced from Administrative Fines in the Field of Forestry
No. 25 / 2021 Implementation in the Field of Energy and Mineral Resources
No. 26 / 2021 Implementation in the Field of Agriculture
No. 27 / 2021 Implementation in the Field of Marine and Fisheries
No. 28 / 2021 Implementation in the Field of Industry
No. 29 / 2021 Implementation in the Field of Trade
No. 30 / 2021 Implementation in the Field of Traffic and Road Transport
No. 31 / 2021 Implementation in the Field of Shipping
No. 32 / 2021 Implementation in the Field of Aviation
No. 33 / 2021 Implementation in the Field of Rail
No. 34 / 2021 Employment of Foreign Labour
No. 35 / 2021 Agreed Term Work Contracts, Outsourcing, Hours of Work and Rest Time, and Work Dismissal
No. 36 / 2021 Wages
No. 37 / 2021 Implementation of Unemployment Support Programs
No. 38 / 2021 Accounts for Covering Costs for Conducting Small Haj Pilgrimage
No. 39 / 2021 Implementation in the Field of Halal Product Guarantee
No. 40 / 2021 Implementation of Special Economic Zones
No. 41 / 2021 Implementation of Free Trade and Free Port Zones
No. 42 / 2021 Facilitating Strategic National Projects
No. 43 / 2021 Resolving Inconsistencies in Spatial Planning, Forested Zones, Permits and/or Rights to Land
No. 44 / 2021 Implementing Prohibitions of Practices of Monopoly and Unhealthy Business Competition
No. 45 / 2021 Implementation of Geospatial Information
No. 46 / 2021 Posts, Telecommunication and Broadcast
No. 47 / 2021 Implementation in the Field of Hospitals
No. 48 / 2021 Third Change to Government Regulation Number 31 of 2013 regarding the Implementing Regulation of Law Number 6 of 2011 regarding Immigration
No. 49 / 2021 Taxation Treatment over Transactions Involving the Investment Management Institute and/or Entities it owns
Number Peraturan Presiden Nomor
No. 9 / 2021 Agency for the Acceleration the Implementation of Housing
No. 10 / 2021 Fields for Business Investment
No. 11 / 2021 Cooperation between the Central Government and State Owned Enterprises in the Implementation of Basic Geospatial Information
No. 12 / 2021 Change to Presidential Regulation Number 16 of 2018 regarding Government Procurement of Goods/Services

The full list of laws that have been either amended or repealed with the enactment of the omnibus Law on Work Creation is as follows:

Law Number Name of Law
2020 11 Work Creation (omnibus)
2020 03 Amendment on Mineral and Coal Mining
2019 17 Water Resources
2019 11 National Science System
2019 08 Implementing Hajj and Umroh
2017 06 Architecture
2017 02 Construction Services
2016 20 Branding and Appellation of Origin
2016 13 Patents
2016 07 Protection and Empowerment Fishers, Aquaculturists and Salt Makers
2015 09 Amendment 2 on Local Government
2015 02 Amendment on Local Government
2014 41 Amendment on Animal Husbandry and Health
2014 39 Plantations
2014 33 Halal Product Guarantees
2014 32 Maritime Affairs
2014 30 Public Administration
2014 23 Local Government
2014 21 Geothermal
2014 07 Trade
2014 06 Villages
2014 03 Industry
2014 01 Amendment on Coastal Regions and Small Islands
2013 18 Prevention and Eradication of Forest Damage
2013 19 Farmer Protection  and Empowerment
2012 18 Staple Foods
2012 16 Defence Industries
2012 02 Procurement of Land for Public Interest
2011 24 Implementing Agency for Social Protection
2011 20 High Rise Housing
2011 06 Immigration
2011 04 Geospatial Information
2011 01 Housing and Settlements
2010 13 Horticulture
2009 45 Amendment on Fisheries
2009 44 Hospitals
2009 42 Amendment 3 on Value Added Tax
2009 41 Protection of Sustainable Basic Crops Lands
2009 39 Special Economic Zones
2009 38 Posts
2009 36 Health
2009 35 Narcotics
2009 33 Film
2009 32 Environment Protection and Management
2009 30 Electricity
2009 28 Regional Tax and Fees
2009 18 Animal Husbandry and Health
2009 16 Gov Reg in Lieu of Law on Taxation Mechanisms
2009 10 Tourism
2009 04 Minerals and Coal Mining
2009 01 Air Transportation
2008 36 Amendment 4 on Income Taxation
2008 20 Micro, Small and Medium Enterprises
2008 17 Shipping
2008  21 Shariah Banking
2007 44 Amendment on Free Trade and Port Zone
2007 40 Limited Liability Companies
2007 27 Coastal Regions and Small Islands
2007 26 Spatial Planning
2007 25 Investment
2007 23 Trains
2004 40 National Social Protection System
2004 38 Roads
2004 31 Fisheries
2004 19 Amendment on Forestry
2003 19 State Owned Enterprises
2003 13 Labour Force
2002 32 Broadcasting
2002 28 Bulding Construction
2002 02 Indonesian Police
2001 22 Oil and Natural Gas
2000 37 Free Trade and Port Zone Sabang
2000 36 Free Trade and Port Zone
2000 29 Protection of Plant Varieties
2000 02 Free Trade and Port Zone Sabang Perpu
2000 01 Free Trade and Port Zone Perpu
1999 41 Forestry
1999 36 Telecommunications
1999 05 Anti-monopolies and Unhealthy Business Competition
1998 10 Amendment on Banking
1997 10 Nuclear Energy
1997 05 Psychotropic Substances
1992 25 Cooperatives
1992 12 Plant Cultivation System
1992 07 Banking
1983 08 Value Added Tax
1983 07 Income Taxation
1983 06 Taxation Mechanisms
1982 03 Compulsory Business Registration
1981 02 Weights and Measurements
1926 226 Disturbance Permits