On September 11, at a press conference on TKDN reform in Jakarta, Indonesian Minister of Industry Agus Gumiwang Kartasasmita stated that the Ministry’s newly released rules for calculating local content (TKDN) will bring more convenience to domestic industries and further foster a business environment conducive to corporate growth.
The most groundbreaking aspect of this TKDN reform is the plan to shift away from the previous model that relied solely on cost-based accounting to accumulate points. The core of the new policy is:
“Any company that invests locally in Indonesia, establishes production facilities, and hires a local workforce may directly receive a 25% base TKDN score.”
This is a fundamental change. Previously, TKDN was a “pass” for participating in Indonesian government and state-owned enterprise procurement, requiring complex cost calculations. Once the new policy is implemented, it means the “act of investing” itself will be quantified into tangible policy benefits. The decision to “build a local factory” will allow companies to directly overcome the most difficult hurdle, paving the way for deep cultivation of the Indonesian market.
Forward-Looking Analysis: Four Key Directions of the New Rules
Based on the information disclosed, the reform aims to create a more efficient, friendly, and attractive business environment. The changes focus on four main areas: Incentives, Simplification, Convenience, and Speed.
1. Incentive: From “Cost-Based” to “Invest and Be Rewarded” This is the core highlight of the reform. Under the old rules, companies had to accumulate TKDN points through complex cost calculations.
The new rules completely change this model:
- 25% Base Score: Companies will automatically receive a 25% base TKDN score simply by investing in a factory, having production facilities, and using local labor in Indonesia. This significantly lowers the barrier for foreign companies to participate in government and state-owned enterprise procurement.
- Extra Points for R&D: To encourage high-value-added investment, the new rules, for the first time, grant up to 20% in additional points for companies conducting R&D activities.
2. Simplification: Reducing Compliance Costs and Business Uncertainty
- Simplified Calculation: The new rules simplify the TKDN calculation method, which is no longer entirely based on total cost, reducing the accounting burden on companies.
- 5-Year Validity: The validity of TKDN certificates has been extended to a uniform 5 years, up from shorter previous terms. This provides businesses with stable operational expectations and avoids the administrative overhead of frequent recertification.
3. Convenience: Supporting the Entire Industrial Ecosystem The new rules pay special attention to the participation of Small and Medium-sized Industries (IKM), introducing a five-year “self-declaration” mechanism. This allows SMEs to obtain certification at a very low cost and high speed, helping to quickly build and improve the local supply chain and provide better support for large-scale investment projects.
4. Speed: Efficiency is the Lifeline of Business The new rules have drastically streamlined the certification process, significantly shortening the time required:
- Standard Certification: Reduced from 22 working days to 10 working days.
- SME “Self-Declaration”: Reduced from 5 working days to 3 working days.
A Dual-Pronged Strategy: The Strategic Resolve Behind Indonesia’s “Tighten and Loosen” Approach
At the press conference, Minister Agus announced another major piece of news that provides the strongest support for the new TKDN rules.
Minister Agus clearly stated that tax incentive policies for Completely Built-Up (CBU) imported electric vehicles will expire at the end of 2025 and will not be extended. This means that for numerous auto companies, including BYD, Geely, and Xpeng, the only way to continue enjoying policy benefits and deepen their presence in the Indonesian market is to invest and build local factories for localized production.
The announcement of these two policies on the same day is no coincidence. They are two sides of the same coin, together forming Indonesia’s new logic for attracting investment:
- “Tighten”: Tightening incentives for pure trade models (like CBU imports) and raising the threshold for short-term market access.
- “Loosen”: Easing rules and incentivizing physical investment (local factory production), providing unprecedented convenience for long-term, committed investors.
The Window of Opportunity is Open: Plan Proactively Instead of Waiting
For Chinese companies currently evaluating investment opportunities in Indonesia, this is no longer a long-term plan but an immediate reality. The question is no longer “whether to invest in Indonesia,” but “how to seize the opportunity and establish a presence quickly.” It is foreseeable that companies that can respond swiftly to the policy and initiate local production will undoubtedly gain a first-mover advantage in this vibrant land.
Source: Shangbao Indonesia (https://www.shangbaoindonesia.com)
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