Regulatory disharmony and a lack of transparency is a dire problem for businesses and investors in Indonesia. More than 8,900 new regulations were issued at the national level from 2014 to October 2018, according to data published by the Indonesian Center for Law and Policy Studies (PSHK). With too little coordination and synchronization between ministries, the chances of new regulations overlapping, or even contradicting existing regulations are high. Overlapping regulations have resulted in confusion, particularly among business players and investors and potential investors who are longing for certainty and predictability.
President Joko Widodo is well aware of this problem, and has proposed a solution – omnibus bills. An omnibus bill is a single piece of legislation revising numerous articles in several laws at once. This, according to the government, is the way to fix problematic articles in multiple laws. Now that two omnibus bills are nearly ready to be registered in the National Legislation Program, businesses are curious about the results this legislative tool can bring and how applicable it is in Indonesia’s legal system.
AmCham Indonesia spoke to Benny Riyanto, head of the National Law Development Agency (BPHN), about the progress of the omnibus bills. As one of the main stakeholders in the law development program in Indonesia, BPHN has an important role in making omnibus bills. As head of BPHN, Benny has attended focus group discussions and seminars on this type of bill. He discussed with us the background, progress, stakeholders involved and expectations of the omnibus bills.
AmCham Indonesia: What is behind the creation of the omnibus bills
Benny Riyanto: Omnibus bills are popular in countries with a common law system. However, in practice, countries with a civil law system like Indonesia can also apply the concept. In fact, Indonesia has [already] adopted a policy similar to omnibus bills. In President Jokowi's first term, he instructed all ministries and agencies to conduct regulation simplification, which in essence is similar to an omnibus bill. The government also passed Government Regulation No. 24 year 2018 regarding Online Single Submission (OSS), which in practice is similar to an omnibus bill.
Nowadays, there is no clear dichotomy between common and civil law systems. There are some common law concepts that are practiced in the civil law system, and vice versa. It now depends on functions and practicality. In our case, the Indonesian government sees the need to reform our laws and regulations to be more appealing to investors and ultimately increase Indonesia's Ease of Doing Business [EoDB] rank. An omnibus bill is seen as a fine legal instrument to reach that goal, because it can revise several problematic articles in various laws at once.
It should also be noted that an omnibus bill is adopted in special situations or [times of] specific needs, and not used regularly. An omnibus bill is like a drug. We don't consume drugs regularly; we consume drugs when we need to cure a particular disease. An omnibus bill is used to solve a particular problem, in a particular time. In our case, it is to increase Indonesia’s EoDB rank and ultimately boost investment to Indonesia.
How many omnibus bills are being prepared?
Originally, there were two omnibus bills that President Jokowi introduced at his inauguration: the job creation bill and the small and medium-sized enterprises [SMEs] empowerment bill. But after a cabinet meeting, it was agreed that the SMEs empowerment bill would be merged with the job creation bill. There is also an additional omnibus bill that regulates taxation policies. The Coordinating Ministry for Economic Affairs is the front man in the process of drafting the job creation bill, while the Ministry of Finance is leading the omnibus taxation bill in coordination with the Ministry of Law and Human Rights.
The omnibus job creation bill aims to revise articles that are investment-unfriendly in about 80 laws. The bill is divided into 11 clusters: simplification of business licenses, investment requirements, manpower, facilitation and protection of SMEs, ease of doing business, research and innovation support, government administration, imposition of sanction, land procurement, facilitation of government projects and economic zones. The academic paper and rough draft of the bill are at the finishing stage [as of mid-December].
It should be noted that an omnibus bill will not revise the whole law, but only certain parts that are investment-unfriendly. For instance, one of the articles the omnibus job creation bill aims to revise is the notorious Article 20 of the 2016 Patent Law. Revising only one article in a law will not change the whole law, except that if this one article is the soul of the law. If the law is on its own revision process, for example the 2016 Patent Law and 2003 Manpower Law, the revision process will still be carried out separately from omnibus bills.
Omnibus bills offer efficiency to the government to simplify regulations. Without using this legal instrument, the government would need years to revise all 80 laws. This is a good step by President Jokowi in simplifying regulations to attract more foreign direct investment. We all hope that omnibus bills can be a spearhead for pushing regulation reforms.
What is BPHN's key role in the making of the omnibus bills?
One of BPHN's important functions is to facilitate bills proposed by the government to the National Legislation Program. It should be noted that there are three proposers of bills in Indonesia; the House of Representatives [DPR], Regional Representative Council [DPD], and the government. Omnibus bills will be submitted to the National Legislation Program, and labelled "Priority" from the government's side to be passed in 2020.
A bill must have five conditions to be labelled "Priority." First, the academic paper of the bill is ready. Second, that academic paper has been harmonized by BPHN, accompanied by a statement letter from the Ministry of Law and Human Rights that the academic paper has been harmonized. Third, the draft bill must be ready. Fourth, the bill needs to be harmonized by the Directorate General of Legislation, accompanied by a statement letter from the Ministry of Law and Human Rights that the bill has been harmonized. Fifth, relevant ministries need to meet and discuss this bill.
BPHN’s main objective is to make sure that omnibus bills are labelled “Priority” in the National Legislation Program. This is a big project by the government. Harmonizing omnibus bills to all relevant ministries and agencies is complicated work. But I believe that crafting a good law and regulation is an investment in the future. Investment is not only about money or capital, but also in creating good laws and regulations. The government needs to perceive law-making as an investment, and thus it needs to be done properly.
What can the business community expect from these bills?
The government believes that the making of omnibus bills can start a positive trend in law-making in Indonesia. With a better and more predictable regulatory system, Indonesia will have a better business climate which ultimately increases business competitiveness, more investment and more job opportunities for the people. Omnibus laws will also have a domino effect on the implementing regulations of the laws, such as government regulation, ministerial regulation and others.
Like other law-formulation processes, the government will also conduct a public hearing to cater to public participation in the making of the omnibus bills. This is important, since omnibus bills will affect mainly businesses and potential investors. The business community will be pleased to see a better business climate through more business-friendly regulations. The business community can also expect more benefits when it comes to tax through the omnibus tax bill.
I would say that the president is very serious about making this a reality. With support from DPR and DPD, we aim to issue the omnibus job creation bill in the first semester of 2020.
