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Tax Breaks for Corporate Bond Investors

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Dan Edwards
Dan Edwards has been with Alpha Southeast Asia since 2013 and edits both print and online versions of the magazine. He wrote the award-winning story ‘spotlight on unclarity’ soon as after joining Alpha Southeast Asia. He is based in Singapore.

Indonesia is considering tax breaks for investors in the nation’s corporate bonds and is also planning to make it easier for local companies to sell shares to the public, the Financial Services Authority said.

The agency, known locally as the OJK, is in talks with the taxation department to introduce incentives for bondholders, Nurhaida, executive head of capital markets supervision, said in an interview in Jakarta today. The OJK also plans to issue a rule by the end of this year that will allow companies to submit one application for multiple public share offers, she said.

Indonesia’s corporate debt market is much smaller than other Southeast Asian nations, accounting for 2.2 percent of its gross domestic product in June, compared with 16.1 percent in Thailand and 43.3 percent in Malaysia, according to the Asian Development Bank. Sales fell to 57 trillion rupiah ($4.7 billion) last year, from a record 87 trillion rupiah in 2012, Nurhaida said. Indonesia currently charges 20 percent tax on returns on company debt.

“We are in talks with the taxation department on what incentives can be given to corporate bondholders to improve demand,” Nurhaida, who like many Indonesians uses only one name, said at her office in central Jakarta. “This will then be followed by greater supply.”

The OJK recently succeeded in overturning a government rule to raise the tax on returns for funds investing in government notes to 15 percent, maintaining the levy at 5 percent through 2020, Nurhaida said.

Mining Companies

The value of Indonesia’s stock market lags behind that of its peers at 50.4 percent of GDP, compared with 162 percent in Malaysia, data compiled by Bloomberg show.

The agency is in talks with the stock exchange and the Energy and Mineral Resources Ministry to allow mining companies to be publicly listed without providing proof of revenue, which is currently required, Nurhaida said.

“Mining companies often don’t have revenue during the exploration stage, which is when they need investment the most,” she said. “We will likely focus on their prospects, such as looking at their reserves, to ensure the risk to investors is minimal, while giving companies the chance to tap capital.”

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