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BATAM TRANSFORMATION FROM FTZ TO SEZ

The globalization opened up windows for economic opportunities in many countries, as well as
eliminating trade barrier with zero tariffs which has driven changes in production and distribution
model. Many multinational companies are now outsourcing to countries offering competitive
production cost and strategic location. In anticipating this progress, the Governnor of the Republic of
Indonesia developed strategic location of Free Trade Zone (FTZ) in Batam,, which exempted from
duty, value added tax, sales tax on luxurious goods and excise enacted by Laws No.44 year 2007.

The President of Republic of Indonesia, Joko Widodo has seen the development of Batam Free Trade
Zone and foresee the region to achieve more support to the Indonesia economy despite Batam
achieved an economic growth of 7.99%, significantly higher than Indonesias national economic
growth rate of 4.8% in 2015 and approved 410 new projects with total investment value of more
than 474 Million USD, 66% increase than the previous year of onnly 117 projects with value at 285
Million USD based on the Investment Activities Report, Laporan Kegiatan Penanaman Modal
(LKPM).

The Central Government of the Republic of Indonesia highlighted Batams FTZ as experiencing
stagnant growth, which is below expectation. Since it is just 20kms from Singapore, the
Development of Batam was expected to grow at least prallel to that of Singapores development.
Therefore, as one of the eonomic reform packages by President Jokowi of Special Economic Zone
(SEZ), through the Coordinating Minister for Economic Affairs, Batam will be re-assigned into a SEZ
through Badan Pengusahaan (BP) Batam. The new policy will be able to provide more incentives and
ease to new investors. BP Batam, which was used to be uder the Regional Council chaire by the
Governor of Riau Islands, has now become a centralized institution under the new Chairman of
Regional Council who is the Coordinating Minister for the Economic Affairs, Darmin Nasution. BP
Batam will become the administration and management in Batam SEZ to acct as a one stop licensing
center with the authorization and cooperation of virtually all ministries, which will coordinate the
provision of all tax incentives and expedited licences.

The SEZ development model, implemennted successfully in many other countries, will offer more
attractive incetives such as tax holiday and tax allowance. Investment permits and licenses will also
be under BP Batam to ensure easy procedures. Insfrastructures and facilities will be developed furter
to support the new era of SEZ. In order to revitalized and implement the new status of Batam,
Darmin has appointed a new top management level in BP Batam replacing the previous
management chaired by Mustofa Widjaja.

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