Capital Requirement Simplified to Boost Ease of Doing Business Index

The government has claimed that Indonesia's rank in ease of doing business has jumped from 109th to 53rd. According to the Investment Coordinating Board (BKPM), small and medium businesses (SME) have contributed significantly to the improvement in the ease of doing business index.

The board’s chief Franky Sibarani said that the government has offered many business incentives to SMEs. One is easing the capital requirement for SMEs to start up businesses. This policy was set out in Government Regulation No. 7/2016 concerning the Amendment to the Authorised Capital of Limited Liability Companies.

"Its contribution to (the improvement in the ease of doing business index) is significant. Now, you can establish (an SME) with capital of IDR 200,000," said Franky after giving a welcome speech during a talk show on Improving the Ease of Doing Business, Jakarta, Monday (11/4). (Read: Government: Indonesia Ranks 53rd in Ease of Doing Business)

Previously, SMEs had to have at least IDR 50 million in authorised capital to start a business. Under the new regulation, the amount of authorised capital is determined by the founders of the SME themselves. The authorised capital must be at least 25 percent of the subscribed and paid up capital, which is backed by a valid proof of capital deposit.

Regional governments also help improve the ease of doing business. As reported earlier, the World Bank measures the Ease of Doing Business in two Indonesian cities: Jakarta and Surabaya. Both cities have successfully simplified their business licensing procedures. Franky said that Jakarta and Surabaya have cut the number of licensing procedures from 13 to 5 and 4, respectively.

"Also, the Ministry of Trade has merged the trading permit and the company registration certificate, which has contributed a lot (to the improvement)," he said. (Read: Government to Involve Two Regional Government to Achieve 40th Position in Ease of Doing Business)

Franky added that Regulation of Supreme Court No. 2/2015 on Procedure for Resolution of Small Claims will make it easier for SMEs to start a business. He said that although the claim that Indonesia now ranks 53rd is only interim result and it has not been compare with other countries, this will be a big step for the government towards achieving 40th position in the Ease of Doing Business index by 2017.

Earlier, Franky claimed that Indonesia now ranks 53rd in the Ease of Doing Business. The calculation made by the government is based on the 10 indicators used by the World Bank to measure ease of doing business. These indicators are starting a business, applying for the building permit, getting electricity connections, registering property, obtaining loans, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business.

Chair of the Indonesian SME Association, M. Ikhsan Ingratubun, said that Indonesian SMEs hoped that these improvements in the ease of doing business index would make an actual difference. “Because these improvements to the ease of doing business will be of enormous benefit of the Indonesian people,” he said. (Read: Widodo: Ministers Should Not Sign Carelessly to Avoid Problematic Regulations)

Meanwhile, Research Director of Core Indonesia M. Faisal said that the Ease of Doing Business index falls short when assessing the health of the business climate in a particular country. “Its indicators are biased and not representative, and the same weight is given to each of its indicators and sub-indicators. In addition, the ease of doing business for investors needs to take into account investment quality and the climate for workers,” he said.