Last week the government submitted the controversial omnibus bill on job creation to the House of Representatives, aiming for a conclusion in deliberation within 100 days.
Last week the government submitted the controversial omnibus bill on job creation to the House of Representatives, aiming for a conclusion in deliberation within 100 days.
President Joko “Jokowi” Widodo initiated the omnibus bill to improve the ease of doing business in Indonesia and attract investment, thereby boosting job opportunities and economic growth in Southeast Asia’s largest economy. Annual economic growth slumped to a three-year low of 4.97 percent in the fourth quarter of 2019 as investment and exports cooled.
However, labor groups are protesting the bill over potential reductions in their rights, remuneration and job security. Observers have criticized the stronger role of central government, which could potentially pose risks to the checks and balances mechanism of Indonesia’s democracy. Environmentalists have warned that less stringent Environment Impact Analysis and building permit requirements would result in unsustainable growth.
Businesses, however, have welcomed the bill due to the focus on streamlining business licenses, making Indonesia more open to foreign investment and a more flexible labor market.
The omnibus bill on job creation would amend 73 laws and consists of 15 chapters and 174 articles. The government and businesspeople consider Indonesia to be over-regulated with a total of 43,511 central government regulations as well as ministerial-, agency- and regional-level rules.
The landmark bill will affect every single Indonesian as it covers a wide range of issues from business and education to halal certification and regional government powers. Below is The Jakarta Post’s guide to the 1,028-page omnibus bill on job creation.
Relaxation of environment standards
The omnibus bill on job creation significantly relaxes environmental standards for business activities that require an environmental impact analysis (Amdal). The bill amends Article 23 in Law 32/2009 on environmental protection and management that lays out the criteria that businesses must follow to request an Amdal prior to operation.
The criteria includes changes in the natural landscape, resource exploitation, pollution, socio-cultural impact, conservation and cultural heritage, security risks, plants and animals, among others.
The omnibus bill stipulates that only businesses that “have important effects on the environment, social, economic and culture” will require an Amdal. Details on this stipulation will be regulated in a Government Regulation (PP).
Furthermore, the people who live in surrounding areas of business activities that require an Amdal would no longer be able to appeal the document, according to amendments to Article 26 of Law 32/2009. Environmental experts will also no longer be involved in environmental impact analysis, the omnibus bill reveals.
The Amdal assessment committees, which comprise the environment agency, related technical institutions, environment and technical experts, environmental organizations and public representatives, are revoked in the draft bill.
Revocation of building permits
A number of requirements and licenses required to build buildings are slated to be scrapped in the omnibus bill. The draft bill revokes around 26 articles, or almost half, of Law 28/2002 on buildings.
Administrative requirements such as building permits (IMB), building ownership status and licenses for land rights, to licenses for architecture and purpose of buildings, among many others, stipulated in Law 28/22 are set to be cut in the omnibus bill.
Licenses for safety, structural requirements, protection against fire and lightning strikes, as well as requirements for health, air, lighting, sanitation, building materials, building comfort, evacuation access and accessibility for disabled visitors are also set to be revoked.
New business license regime
President Jokowi has strengthened the role of the Investment Coordinating Board (BKPM) to streamline the issuing of all business licenses. The responsibility for issuing business licenses is currently spread across many government institutions and regional governments.
The omnibus bill on job creation strengthens existing regulations by simplifying the business license procedure across almost all business sectors, including maritime and fisheries, agriculture, forestry, energy and mineral resources, electricity and industry. Further, trade, standardization including halal certification, infrastructure and public housing, transportation, health, drugs and food, education and culture, tourism, posts, telecommunications and broadcasting, security and defense are also covered.
The bill amends prevailing laws related to the aforementioned business sectors, aimed at easing the licensing process and doing business in the country. These new arrangements take up most of the proposed omnibus bill.
Investment relaxation
The omnibus bill introduces a new list of sectors in which investment is prohibited, while others will be opened and regulated in a separate Presidential Regulation (Perpres). The Perpres will replace the notorious negative investment list (DNI) with a new investment list for priority sectors, government officials have said.
Article 12 of Law No. 25/2007 will be amended to no longer include a stipulation banning foreign investment in the negative investment list. Instead, business sectors closed for investment, both domestic and foreign, are listed as follows: narcotics, gambling, endangered flora and fauna, coral reefs, chemical weaponry, industrial chemical and ozone-endangering chemical materials.
Looking at the media sector, for instance, a stipulation that foreign investors can only own media companies through a stock market mechanism – such as buying news organizations’ shares in an initial public offering – has been amended.
Article 11 in Law No. 40/1999 on the press now loosely states that the “central government will develop the press through investment according to investment laws and regulations”.
Labor reform
Overall rights for severance payments, beyond basic allowances, are either set to be reduced or scrapped completely, even though the calculation for basic severance pay remains unchanged.
Rigid calculations on rights for severance payments, payments for recognition of length of service (UPMK) and compensation for rights (UPH) that are differentiated based on reasons for the lay-off, as stipulated in articles 161 to 172 in the prevailing Law No. 13/2003 on manpower, are all going to be scrapped. Instead, the omnibus bill on job creation only requires employers to make severance payments and the UPMK according to the employees’ length of service.
Expatriates will be allowed to work in more functions than only diplomatic affairs, as stipulated in Article 42 of the Manpower Law. In the omnibus bill, foreign workers will be allowed to work in Indonesia without a permit in positions that range from members of boards of directors and commissioners, and diplomatic or consular staff, to researchers and emergency engineers. Foreign workers in start-ups will also be exempted from work-permit requirements.
Outsourcing requirements are to be significantly relaxed under the omnibus bill, as Article 66 of the Manpower Law that prohibits outsourced employees from undertaking more than a core task in a company is to be revised. The omnibus bill will open the possibility for outsourcing institutions to hire workers for various tasks, including freelance and full-time workers.
Further, labor-intensive industries will not have to adhere to regional minimum wages and the governors of respective provinces may use different formulas in their calculations. More details will be covered in a separate PP, according to the draft bill. Micro and small businesses are exempted from minimum-wage stipulations but must pay their workers above the poverty line rate.
The prevailing Article 93 that stipulates workers’ rights for paid leave under certain circumstances has been deleted from the omnibus bill. The circumstances currently covered include paid leave of three days when workers get married, two days when their children are circumcised or baptized or get married, or when their wives are in labor or undergoing an abortion. Workers whose family members pass away get one to two days’ unpaid leave in the current regulation.
The omnibus bill revokes Article 159 that allows workers to file a lawsuit in an industrial relations court or agency if they want to challenge the reasoning behind the decision to lay them off.
A new social safety net mechanism has been added to the omnibus bill, called the social security program for laid-off workers and managed by the BPJS, so long as workers or their employers pay the premiums. This will be on top of existing programs that cover health, work-related accidents, pensions, old age and life insurance.
The government is also set to introduce a new one-off bonus mechanism in the omnibus bill, requiring medium and large companies to pay an immediate salary bonus depending on the workers’ length of service in their companies. Termed a “sweetener”, the bonus is a one-off payment within one year after the omnibus law becomes effective.
Stronger central government
The central government can change prevailing laws for the sake of acceleration of job creation through a PP and may consult with the House of Representatives in doing so, according to Article 170 of the omnibus bill.
New stipulations in the omnibus bill may also empower the Halal Certification Agency (BPJPH) that operates under the Religious Ministry, to issue halal certificates for consumer products. Article 1 of Law 33/2014 on halal products guarantees currently stipulates that halal certification be based on guidance from the Indonesia Ulema Council (MUI).
However, according to the amended Article 7 of the law, the BPJPH broadens partnerships for halal certification to registered Muslim mass organizations (ormas), on top of potential partnerships with related ministries or agencies, halal product guarantors (LPH) and the MUI, as stipulated in the prevailing law.
Sovereign wealth fund
Chapter 10 on central government investment and the ease of national strategic projects mandates the establishment of a “special authority” agency led by the finance minister, a vehicle that President Jokowi has described as a sovereign wealth fund.
The finance minister through the agency, to be called the Investment Management Agency, can invest in financial instruments, manage assets for investment, partner with trust funds, determine investment partners, give and accept loans and manage all assets, according to Article 146 of the omnibus bill.
The agency can partner with third party entities in managing assets, forming joint ventures or other partnership models, according to Article 150. The finance minister will lead the board of directors and the state-owned enterprises minister will act as a member of the board, Article 157 stipulates. The Investment Management Agency will also be led by five commissioners, three from a professional background, one from the Finance Ministry and another from SOE Ministry, according to Article 158.
Weaker regional government role
Regional governments’ role in business licensing will be weakened, if not scrapped completely for several types of licenses, according to amendments and new stipulations in the omnibus bill.
Article 350 (4) of Law 23/2014 on regional government has been amended to require regional governments’ business licensing services to use electronic licensing systems that will be managed by and streamlined to the central government. There is no such rigid requirement in the existing law. Punishment for failure to streamline regional business licensing with the central government would result in the central government taking over regional governments’ business licensing functions.
Further, revocation of local regulations – at the provincial, governor, regency or city administration level – that contradict prevailing and higher laws and regulations can be done through Perpres, based on the omnibus bill. Article 251 of the Regional Government Law, meanwhile, only allows for revocation of province- and governor-level regulations by the governor as representative of the central government.
Punishment for violating the amended Article 251 will result in an administrative sanction and delay in evaluation of draft regional regulations. The sanction of stopping budget transfers will be imposed on regional governments that still impose regional taxes or levies, which have been revoked by the president, according to Article 252 of the omnibus bill.
Other amendments that would weaken the Regional Government Law include revisions to Law 32/2009 on environmental protection and management, which will allow the central government to take over environment-related licenses from regional governments, including Amdals.