|Job Creation Law: Overview|
Law Number 11 of 2020 regarding Job Creation (“Job Creation Law”) has officially been signed into law by President Joko Widodo on November 2, 2020. The law was framed as an omnibus law that contains 11 (eleven) clusters combining a total of 79 (seventy-nine) laws. The law covers a wide array of policies, among others simplification of licensing, investment requirements, employment, and government administrations in support of the new licensing regime. The Job Creation Law is expected to encourage national economic growth by bringing in more investments and creating jobs for the Indonesian people. MAGNAAR Legal Insights (MLI) will discuss in general various provisions as regulated under the new Job Creation Law.
B. STRUCTURE OF JOB CREATION LAW
The Job Creation Law was created as omnibus law, which not only regulates new norms, but also amends, deletes, or revokes several provisions of other laws and regulations all at once. Several laws were revoked and nullified by the Job Creation Law, such as Law Number 3 of 1982 regarding Mandatory Company Registry and Staatsblad of 1926 Number 226 in conjunction with Staatsblad of 1940 Number 450 regarding Nuisance Law (Hinder ordonnantie).
The Job Creation Law was enacted with the aim of creating and increasing employment opportunities as well as adjusting various regulatory aspects to improve investment ecosystem and business activities. To achieve this goal, the scope of the Job Creation Law covers strategic policies including employment, empowerment of cooperatives and micro, small and medium enterprises, support for innovation, land acquisitions, and adjustments to government administration.
The forefront regulation of the Job Creation Law is aimed to improve the investment ecosystem and business activities, including:
a) application of risk-based business licensing;
b) simplification of basic requirements for business licensing;
c) simplification of sectoral business licensing; and
d) simplification of investment requirements.
By way of improving the investment ecosystem, it is expected to open opportunities for increased foreign investments and economic equality in Indonesia.
C. LICENSING REGIME
- Risk-Based Business Licensing
The Job Creation Law attempts to simplify business licensing by changing the concept from license approach to a standard and risk-based approach that is based on the risk level and scale of business. The determination of risk level and scale of business is based on the assessments on the hazard level and any potential hazardous impact of the business. The hazard level assessment is carried out towards the aspects of health, safety, environment, and/or utilization and management of natural resources.
Based on the assessment on hazard level and potential hazardous impact, the risk level are divided into:
a) low-risk business activities;
b) medium-risk business activities, which consists of:
- medium-low risk business activities; and
- medium-high risk business activities;
c) high-risk business activities.
Business permit for low-risk business activities is adequately in the form of Business Identification Number (Nomor Induk Berusaha or “NIB”) which functions as the identity of the business and provides legitimacy to carry out its business activities. For businesses carried out by Micro and Small Enterprises, NIB also applies as product standard and halal registrations. For medium to low-risk business activities, the applicable business permit is in the form of NIB and Standard Certificate (“SC”). SC is a statement by businesses to comply with standards set forth in the Online Single Submission (“OSS”) system. Similarly, the business permit for medium-high risk business activities are NIB and SC, but the SC will be issued through verification process.
Business permit for high-risk business activities is in the form of NIB and license. The NIB only applies for the preparation of business activities. To obtain a license, businesses must go through a verification process by complying with all requirements including to obtain environmental approval. Further provisions on standards, procedures and criteria for risk-based business licensing are regulated in Government Regulation Number 5 of 2021 regarding Implementation of Risk-Based Business Licensing and Government Regulation Number 6 of 2021 regarding Implementation of Business Licensing in Regions.
- Deregulating Business Licensing
Provisions on licensing and sectoral business activities in the Job Creation Law are efforts to reform and deregulate the current business licensing regime and aimed to adapt with economic and information technology developments. The new risk-based business licensing regime is a shift from license-based approach to risk-based approach. Deregulation is advanced through formulation of Norms, Standards, Procedures, and Criteria (“NSPC”) for risk-based business licensing in the OSS system, which becomes the sole reference for permit services by the central and local governments. The central government can delegate implementing regulations of the NSPC to regional leaders who will then issue these regulations. Technical provisions of NSPC are regulated in Government Regulation Number 5 of 2021 regarding the Implementation of Risk-Based Business Licensing. With the uniformity of the NSPC, it is expected to avoid and resolve problems of overlapping licensing authority between the central government and the regional government, which has created complication in the licensing process for investors.
The consequence of uniformity in risk-based business licensing NSPK is that regional governments will need to revise its regional regulations related on business licensing to align with the Job Creation Law. Therefore, business permits applications in all provinces, cities or districts throughout Indonesia will have the same standard so that investors can get certainty on the speed, convenience, and transparency of the business licensing process in Indonesia.
- Business Licensing Regime Not Regulated under the Job Creation Law
Not all sectors of business activities are regulated under the Job Creation Law. Business licensing that is not regulated in the Job Creation Law are, among others, the financial sector, which includes banking, capital markets, and insurance. The Job Creation Law only made slight changes to the requirements for the setting up conventional banks and sharia banks, while further provisions regarding the licensing of the banking, capital market and insurance sectors still refers to the regulations of Bank Indonesia and the Financial Services Authority. Financial industry is considered as highly regulated industry, thus its business licensing will need to be specifically regulated in accordance with applicable laws and regulations.
- Sanctions for Revocation of License and Concessions
Criminal sanctions and administrative sanctions remain regulated separately under each sectoral laws and/or implementing regulations of the Job Creation Law. However, the Job Creation Law specifically regulates the imposition of sanctions on several business activities, including legal consequences against rights, permits, or land concessions and or abandoned areas. The rights, permits, or land concessions and/or areas which intentionally have not been cultivated or neglected within a period of 2 (two) years from being granted, will be revoked and returned to the government. Similarly in the marine sector, if the holder of a business permit related to utilization at sea does not carry out its business activities within a period of 2 (two) years from its issuance, the holder is subject to administrative sanctions in the form of revocation of its business license.
- Harmonization and Synchronization
Upon the enactment of the Job Creation Law, any applicable regulation that contradicts with the Job Creation Law or its implementing regulations, must be harmonized and synchronized as coordinated by the relevant ministry or legislative institution. Harmonization and synchronization related to regional regulations are carried out by the relevant ministry or legislative institution together with the interior ministry.
With the enactment of the Job Creation Law, business licenses or sector permits that have been issued are still valid until its expiration date. Business licenses and/or sector permits that have been issued prior to the enactment of the Job Creation Law will need to be adjusted to the provisions under the Job Creation Law. Ongoing business licenses applications will be adjusted to the provisions of the Job Creation Law.
The Job Creation Law states that the implementing regulations must be enacted within a maximum of 3 (three) months. As per February 2, 2021, the government has officially promulgated 45 (forty-five) government regulations and 4 (four) presidential regulations to implement the Job Creation Law. However, up until this MLI was prepared, we found several implementing regulations for the Job Creation Law that has not been enacted, one of which was related to the construction services sector, namely the Draft Presidential Regulation on Financial Rights and Facilities for Construction Services Development Institutions.
One of the crucial implementing regulations of the Job Creation Law is the Positive Investment List as contained in Presidential Regulation Number 10 of 2021 regarding the Investment Business Sector (“PR 10/2021”). PR 10/2021 replaces the term ‘Negative Investment List’ which was originally regulated in Presidential Regulation Number 44 of 2016. The enactment of PR 10/2021 has caused much controversy by opening liquor investments which is considered too lenient. Eventually, on March 2, 2021, President Joko Widodo revoked the attachment of PR 10/2021 and issued Presidential Regulation Number 49 of 2021 regarding Amendments to Presidential Regulation Number 10 of 2021 regarding the Investment Business Sector. This shows that the harmonization and synchronization of the Job Creation Law will not be easy and full of challenges.
The Job Creation Law will have a substantial impact to the Indonesian economy. The Job Creation Law is considered by the World Bank to have a positive impact because regulation is a major reform effort to make Indonesia more competitive. The removal of various restrictions on investment is seen as a positive signal that Indonesia is open for business. This can help the Republic of Indonesia to attract foreign investors and create jobs to help fight poverty.
The Job Creation Law has given enormous authority to the executive branch in making various policies in the economic field. The Job Creation Law also fundamentally changes the business licensing regime in Indonesia. With the risk-based business licensing, it is expected that it will simplify the business licensing process in Indonesia and eliminate the uncertainty of the licensing process due to differences in requirements and processing time in each region. Therefore, harmonization and synchronization of various regulations, both from the central and at the regional level, is key to the effectiveness of the Job Creation Law to increase job opportunities in Indonesia. Participation from all stakeholders is also much needed in the implementation of the Job Creation Law.
If you have any questions or need further clarification regarding this MAGNAAR Legal Insights (MLI), please contact our team:
Naila Syifa Arnita