Legal Updates for March 2023

New Capital, New Rules. A Closer Look at Land Regulations for Nusantara

The relocation of Indonesia's capital from Jakarta to a new location in Kalimantan has been discussed for several decades. This discussion was triggered mainly due to the challenges faced by Jakarta, including overpopulation, traffic congestion, and environmental degradation. In August 2019, President Joko Widodo announced the decision to move Indonesia’s capital, and to support this move, the government issued Law No. 3 of 2022 on State Capital. Among others, this Law established a new government agency, the State Capital Authority (Otorita Ibu Kota Negara or "OIKN"), which is a ministry-level agency responsible for the preparation, development, and relocation of the capital, as well as the administration of regional governments in the capital.

The new capital, named Nusantara, is intended to be the centre of the Indonesian government’s activities and to achieve this goal, the government hopes to attract both domestic and foreign investors into Nusantara. To facilitate investment in Nusantara, the government recently issued Government Regulation No. 12 of 2023 on Business Licensing, Ease of Doing Business, Investment Facilities for Business Players in the State Capital ("Regulation"), which offers various incentives that we will discuss in more details below.

PPSK Law and The Changing Landscape of Indonesia’s Capital Market Sector

In early January of this year, the Indonesian government enacted the ‘Omnibus Law for the financial sector’, or Law No. 4 of 2023 on Financial Sector Development and Reinforcement (“PPSK Law”). The PPSK Law, which became effective immediately upon issuance, amends 16 laws and revokes 1 law, i.e., Law No. 11 of 1992 on Pension Funds.

Broadly, the PPSK Law aims to revamp the country’s financial sector. It addresses not only the emergence of complex and high-risk financial instruments, such as crypto assets, but also the laxity, gaps, or overlap in the assessment, governance, and enforcement in the financial sector. The PPSK Law also amends the capital market regulatory regime as governed under Law No. 8 of 1995 on Capital Markets (“Capital Markets Law”) and Law No. 21 of 2011 on the Financial Services Authority.

This alert will focus on the notable changes to the capital markets regulatory regime.

Does the New Regulation on Pre-Investigation Tax Audit Improve Certainty for Taxpayers?

In a situation involving a tax crime, the tax authority must carry out a pre-investigation audit before proceeding with an investigation. The purpose of this audit is to gather preliminary evidence to determine if a tax crime has indeed been committed. If the tax authority considers that it has enough preliminary evidence, it may escalate the process into a full investigation. On the other hand, if the tax authority determines that there is insufficient preliminary evidence, it will terminate the process.

In practice, many felt that the procedural rules regarding the pre-investigation audit for tax crimes were inadequate in providing taxpayers with certainty. Therefore, the Minister of Finance recently issued a new regulation on pre-investigation tax audit procedures, i.e., Minister of Finance Regulation No. 177/PMK.03/2022, which became effective on 3 February 2023 ("Regulation").