Despite shortcomings, Indonesia still has a great potential, thanks to reduced tax-rate, relatively affordable living cost, and low regional minimum wage

Despite the Indonesian government’s ambition to shape the country into Southeast Asia’s biggest digital economy by 2020, a report launched by ValuePenguin revealed Indonesia as a less “friendly” nation in the Asia Pacific to build a startup in.

The statement was based on several different factors. ValuePenguin built a benchmark in 12 Asia Pacific countries by setting up 18 economic indicators, such as GDP growth, living cost, taxation, and access to funding. The firm then classified the indicators into four categories: Economic health, cost of doing business, business climate, and labour force quality.

Of the 12 countries that are being analysed, Indonesia ranked fourth from the bottom with Thailand, the Philippines, and Vietnam underneath. Meanwhile the top positions are being secured by Singapore, Hong Kong, Japan, Taiwan, and Malaysia, followed by South Korea, China, and India.

Research methodology

In determining the composite index of each category in each country, ValuePeguin looked at the compilation of data gathered from various references. To determine economic health, the firm considered GDP per capita, unemployment rate, and the proportion of every adult citizen with a bank account.

Cost of doing business was determined by business operational cost, credit fee, tax rate, and wage cost. Meanwhile, the composite index for business climate was determined by several factors, starting from trust on public institution, tech development, to labour force quality.

“In this study, we consider the secondary and tertiary education attainment rate. Singapore, Korea, and Japan have very well-educated adult populations, which bodes well for startups hiring in these countries,” the firm explained in a press statement.

Also Read: Is Singapore tech ecosystem sustainable? Report shows half of startups operating at loss

Indonesia-specific results

From all the classifications, Indonesia’s economic health fell into the 10th rank, cost for doing business fell into third rank, business climate fell into ninth rank, while quality of labour force fell into eighth rank. This is caused by the low GDP per capita at US$3.750, low unemployment rate (5.5 per cent), and high interest rate (10-year government bond at 6.4 per cent).

“Furthermore, Indonesia is a difficult place to be for tech startups as only 25.4 per cent of its citizens have access to internet.”

Despite the shortcomings, Indonesia continues to have a great prospect for startup development due to factors such as low tax rate for local companies (50 per cent deduction for IDR50 billion/US$3.6 million taxable income), combined with low living cost and salary expectation for recent graduates when compared with other Asia Pacific countries.

Comparison with Singapore

ValuePenguin explained that Singapore has been considered by the World Bank as the second best country for doing a global business. The small country is considered rich with a US$52.962 GDP per capita, low uneployment rate (2.15 per cent), and good access to internet (81 per cent).

Despite its high living cost and cost for doing business, the Singapore government also hands out tax incentive for beginners at 75 per cent out of the first S$100,000 (US$75,000) and at 50 per cent out of the same amount for the next years. Certainly, these incentives have made Singapore a more affordable place to start a business.

At the other hand, Singapore also has the highest education attainment rate in Asia (42 per cent of working adults have post-secondary education). One of the leading startup success story coming from the country is Garena, which is now known as Sea.

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The article Riset ValuePenguin: Indonesia Kurang Ramah untuk Bangun Startup was written by Marsya Nabila for DailySocial. English translation and editing by e27.

Image Credit: urfl / 123RF Stock Photo

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