In this comparative report, we look at the differences between doing business in Singapore and in Indonesia.
This report refers to data from World Bank’s 2014 ‘Ease of Doing Business’ report and World Economic Forum’s Global Competitiveness 2013 – 2014 as well as 2014 Global Enabling Trade reports. It measures five indicators, namely company incorporation, corporate tax rate, foreign investment friendliness, intellectual property protection and workforce.
According to the IE Singapore Insights on Indonesia’s Consumer Sector, rapid urbanization, rising income levels, favorable demographic patterns and changing lifestyle trends are reasons to invest in Indonesia’s consumer sector.
The report explained that Indonesia’s consumer sector will be worth some S$1.38 trillion by 2030 as Indonesia’s consuming class triples to 135 million, making it the world’s largest middle class after China and India. The share of private consumption is expected to rise from 56% in 2012 to 65% in 2030. Furthermore, while Jakarta continues to be a key hub, cities such as Surabaya, Bandung and Medan are expected to see faster growth.
In spite of this potential, Singapore is currently a more suitable place to do and grow a business. This is because the country scores much higher on almost all parameters compared to Indonesia.
|World Bank’s Doing Business (DB) 2014
Singapore vs. Indonesia
|Starting a business||3||175|
|Dealing with construction permits||3||88|
|Trading across borders||1||54|
According to World Bank’s ‘Doing Business’ report, Singapore is the easiest place to do business in the world. Indonesia was ranked at 120th place.
In terms of starting a business, Singapore was ranked 3rd, while Indonesia was ranked 175th. Starting a business in Singapore takes just 1 – 2.5 days with 3 procedures. On the other hand, starting a business in Indonesia requires 10 procedures and a period of about 48 days.
Getting a construction permit is also easier and faster in Singapore. According to World Bank, it takes only 11 procedures over 26 days to obtain a construction permit in Singapore. In Indonesia, it takes 13 procedures over 158 days. As a result, Singapore ranks third while Indonesia ranks at the 88th position for this category.
The marginal corporate tax rate in Indonesia is 25%, while it is capped at 17% in Singapore. According to the ‘Doing Business 2014’ report, Singapore was ranked 5th worldwide for its attractive tax rates and online tax filing procedures. Indonesia was instead ranked 137th for the same parameter.
The World Bank report also found that businesses in Indonesia make 52 tax payments a year and spend 259 hours a year filing, preparing and paying taxes. In contrast, Singapore businesses make five tax payments a year and spend 82 hours a year filing, preparing and paying taxes.
For more details on tax rates in Singapore, please visit our page on Singapore taxation.
Foreign investment friendliness
The Singapore government offers numerous incentives for foreign businesses to set their shop in the city-state. Singapore supports an open trade policy and has few barriers to external trade transactions. The 2014 Global Enabling Trade report ranked Singapore at the top position due to its trade-friendly regulations and a business enabling environment. In comparison, Indonesia stood at the 64th place.
In addition, Singapore is moving forward with a greater focus on compliance and transparency. This is reflected in the higher financial reporting standards and compliance with FATCA and BASEL III. Altogether, these measures are expected to safeguard the interests of genuine investors and enable them to make longer term investments in Singapore.
Intellectual property protection
Protection of Intellectual Property (IP) rights is an element that helps gain confidence of foreign investors. According to the World Economic Forum’s Global Competitiveness Report 2013-2014, Singapore stands as second best in the world and first in Asia for IP protection.
In addition, the Political & Economic Risk Consultancy Report 2011 and the International Property Rights Index 2012 have ranked Singapore as the top country in Asia for intellectual property protection. The Global Competitiveness Index (GCI) ranks Indonesia at the 55th position.
|WEF’s Global Competitiveness Index 2013 – 2014
Singapore vs. Indonesia
|Basic Requirements (60%)||1||45|
|Health and primary education||2||72|
|Efficiency Enhancers (35%)||2||52|
|Higher education and training||2||64|
|Goods market efficiency||1||50|
|Labor market efficiency||1||103|
|Financial market development||2||60|
|Innovation and sophistication factors (5%)||13||33|
In spite of its increasingly stricter labour regulations, Singapore offers a highly educated and skilled workforce and has overall good labour market efficiency, scoring high in 9 out of 10 indicators. According to the GCI, Singapore is at the top position for ‘Labour Market Efficiency’. GCI ranked Indonesia at 103rd for the same measure. The country ranked fairly well in 4 out of 10 indicators, but did not do as well in 3 other indicators.
In a Nutshell
The above analysis confirms that Indonesia with its growing middle class, which is now the third largest in the world, also provide other advantages such as favourable demographic patterns, rapid urbanisation, rising disposable income and educated workforce. In spite of all this, Singapore still remains a better place to invest due to ease of company incorporation, low corporate tax rates, foreign investment friendliness, intellectual property protection, and corruption-free bureaucracy.