Chapter 4. Indonesia

Indonesia has one of the most complex regulatory environments in Association of Southeast Asian Nations (ASEAN) for small and medium-sized enterprises (SMEs), with 22 ministries involved in regulatory policymaking and applying various regulatory policy processes and tools. The government recognises the importance of simplifying and improving administrative processes and regulations. As such, it has mandated regulatory impact analysis to be undertaken for all new regulations as of late 2017, although evaluations for existing regulations continue to be done on an ad hoc basis. Indonesia is advanced among ASEAN countries in using information and communication technologies (ICT) in regulatory delivery. There is an abundance of information made available online, with rules and regulations made available through government platforms alongside dedicated non-governmental fora for seeking expert comment or responding to regulations. The government is streamlining its digital portals for business licensing and investment procedures and is making good progress in developing an integrated portal to help businesses get all the permits and information they need in one platform.


Regulatory context

Since September 2015, the Government of Indonesia (GoI) has introduced 16 economic policy packages aimed at accelerating national strategic sectors and projects, improving the competitiveness of Indonesian businesses, attracting investments, and streamlining regulations. These efforts are part of a wider National Strategy for Regulatory Reform 2015-19 spearheaded by President Joko Widodo.

Box 4.1. Economic policy packages in Indonesia

The 16 economic policy packages implemented in Indonesia since September 2015 include:

  1. 1. Improving the competitiveness of national industries.

  2. 2. Easing permit requirements and simplifying export proceeds requirements.

  3. 3. Facilitating financial services, export financing and reducing burden for businesses.

  4. 4. Improving social safety net and social welfare.

  5. 5. Improving industry and investment climate via tax incentives; deregulating Islamic banking.

  6. 6. Stimulating economic activities in border areas; facilitating the developing of strategic commodities.

  7. 7. Incentivising economic activities in labour-intensive industries by accelerating land certification processes for individuals.

  8. 8. Resolving land acquisition disputes; increasing domestic oil production; encouraging local content and aviation industry.

  9. 9. Increasing electricity generation; stabilising meat prices; improving urban-rural logistics.

  10. 10. Revising negative investment list; improving protection for SMEs.

  11. 11. Supporting SMEs and industries via business facilitation.

  12. 12. Improving Indonesia’s Ease of Doing Business (EoDB) ranking.

  13. 13. Reducing bureaucracy to support construction of low-income housing.

  14. 14. Developing an E-commerce Roadmap for providing facilities and incentives to e-commerce and creative industries.

  15. 15. Improving the competitiveness of the national logistics system and accelerate business development.

  16. 16. Accelerating the Doing Business Policy, particularly in the area of streamlining licensing and regulation.

To date, the first 15 economic packages have deregulated 222 regulations from 167 ministries and agencies, as well as 52 Presidential regulations. The 16th economic package has not yet been evaluated as of January 2018.

Source: BKPM (2018), Investment Policy Updates: Presidential Regulation No. 91/2017 on Acceleration of Doing Business

The most recent 16th economic policy package, launched in August 2017, targeted regulatory reform of business licensing and permitting processes. Enacted as a Presidential Regulation No. 91/2017, the 16th package will be implemented in 2 phases that aim to: 1) establish a special task force to streamline/expedite business licensing and a One-stop Integrated Service Programme (Pelayanan Terpadu Satu Pintu, PTSP) for Special Economic Areas, Free Trade Zones, Industrial Areas and Tourism Areas; 2) reform the present business licensing system by clarifying/simplifying licensing regulations and implementing an Integrated Single Submission System across licensing services.

The GoI has announced a goal to improve the country’s Ease of Doing Business (EoDB) ranking to 40 by 2017. It first set its EoDB baselines and targets according to various EoDB indicators in a ministerial regulation in 2015 (Table 4.1) (Ministry of Administrative and Bureaucratic Reform, 2015[1]), and has made a number of refinements on the targets for various aspects of the EoDB index, including numbers of days to complete specific business processes. For 2018, Indonesia is ranked at 72nd place in the EoDB index (World Bank, 2018[2]).

Table 4.1. Targets for Ease of Doing Business (EoDB) in Indonesia

Policy targets



Target 2014

Clean, transparent, and no corruption of bureaucracy

Corruption perception index



Finance auditor opinion (unqualified %)







Enhance the quality of public service

Public service integrity







EoDB rank



Enhance the capacity and accountability of bureaucracy performance

Government effectiveness index



Accountability of public institutions










.. : Missing value or not available

Source: Ministry of Administrative and Bureaucratic Reform (2015), Roadmap of Bureaucratic Reform 2015-2020, Regulation No.11/2015, Jakarta.

BAPPENAS, the Ministry of National Development Planning, has also published specific targets to improve the competitiveness of SMEs and progress towards their achievement in an evaluation of the National Medium-Term Development Plan (BAPPENAS, 2015[3]). This evaluation assesses SME performance according to various economic and labour-related indicators, including investment rate, employment, contributions to exports, proportion of SMEs that have access to financing and apply product standards, etc. (BAPPENAS, 2015, p. 45[3]).

According to the Co-ordinating Ministry for Economic Affairs (CMEA), the biggest challenge for SMEs is not regulatory burden but rather that SMEs are generally insufficiently equipped with the capacity to develop or sustain business; some 80% of SMEs cannot overcome the “valley of death” between operationalising a company and generating revenue. SMEs lack capacity to prepare long or even medium-term business plans and prioritise surviving before growing. Most training programmes provided by the government are not well-adapted to the needs of SMEs. Without a good business plan, SMEs may face even more difficulty in obtaining loans from banks.

Regulatory governance

Institutional and regulatory setup

Table 4.2. Institutional and regulatory setup in Indonesia


State structure

Presidential Representative Democratic Republic

Head of state



The executive power in Indonesia is vested in the President and the Government of Indonesia (GoI). The President serves as the Head of Government and is responsible for appointing the cabinet, and additionally holds power to decide on domestic governance and foreign affairs.

Cabinet of the Republic of Indonesia is responsible for carrying out government policy and is accountable to the President and the Legislature. Members of the Cabinet are appointed by the President, who can also reshuffle or dismiss them at will.

● There are four Co-ordinating Ministries that serve as the central oversight ministry responsible for co-ordinating, synchronising and monitoring the performance and functions of various technical ministries under four areas: 1) Politics, Law and Defence; 2) Maritime; 3) Economic Affairs; 4) Human Development and Culture.

Line Ministries are responsible for initiating and drafting law and regulation proposals. They also oversee the implementation of regulations in their fields of competence.

Ministry of Home Affairs is responsible for co-ordinating local and central authorities on regulatory development and implementation.

Ministry of Law and Human Rights coordinates the lawmaking process.


Bicameral legislature

The legislative branch of Indonesia is the People’s Consultative Assembly (Majelis Permusyawaratan Rakyat, MPR), which comprises the House of Representatives (Dewan Perwakilan Rakyat, DPR) and the Regional Representative Council (Dewan Perwakilan Daerah, DPD). The constitutional power in Indonesia is vested in the People’s Consultative Assembly.

Legal system

● The highest judiciary power in Indonesia is vested in the Supreme Court. The Supreme Court is the final court of appeal for criminal and civic disputes, as well as court disputes. The Chief Justice presides over the Supreme Court.

Constitutional Court of Indonesia rules over disputes relating to the Constitution, along with matters relating to elections and political parties.

Public courts are Indonesia’s court of first instance at the district (city and regency) level and high courts at the provincial or appellate levels. Criminal and civic disputes that are not resolved in public courts can be appealed at the Supreme Court.

Administrative Courts rule over disputes relating to state officials of bodies at the central as well as regional levels. These courts were established in 1986 to ensure that citizens would not be treated arbitrarily or unfairly by government officials or agencies. The tax court is a specialised court inside the Administrative Court system.

● Indonesia’s judiciary system also includes religious courts and military courts for resolving private affairs of Muslim citizens and criminal or civic disputes involving military personnel respectively.

Administrative-territorial structure

34 provinces which are further subdivided into regencies, districts, sub-districts and villages. Sub-districts and villages handle only administrative duties.

Ministry or agency responsible for SMEs or SME-related issues

Ministry of Co-operatives and SMEs

Other support structures within government on regulatory policy

National Standardisation Agency of Indonesia (Badan Nasional Standardisasi, or BSN) is the national standardisation agency.

Financial Services Authority (OJK) is the regulator and supervisor for Indonesia’s entire financial services industry. It is an autonomous government agency that has the mandate, functions, duties, and powers to regulate, supervise, inspect and investigate all financial service activities in Indonesia (Act No.21/2011 on the regulation and supervision of financial services).

Indonesia National Agency of Drug and Food Control is a government agency responsible for regulating, supervising and evaluating drugs, vaccines, pharmaceuticals, food products, food safety and cosmetics (Presidential Decree No.102/2001).

The GoI has also set up task forces to monitor the implementation of the 16 economic policy packages. Task force members come from the private sector, public sector, academia and think tanks. The responsibilities of the task forces are as follows:

  • Accelerating regulatory settlement.

  • Identifying obstacles, problems, and cases.

  • Evaluating implementation and impact analyses of policy packages.

  • Publishing, disseminating and socialising policy packages.

Task forces have also been set up to improve the service, facilitation, simplification and development of online systems to accelerate the process for obtaining business licenses according to Presidential Regulation 91/2017. These task forces operate at the national, ministerial/agency, provincial, county/city levels.

Indonesia’s legislative process

Figure 4.1. Legislative process in Indonesia

Note: Approved bills are submitted by House leaders to the President for signature. If the President does not pass the bill after 15 working days, House leaders may request an explanation from the President. If bills are not signed after 30 working days, they automatically become laws.

Source: Republic of Indonesia (2011), Law 12/2011 on Establishment of Laws and Regulations, Jakarta.

Draft regulations may be initiated or proposed by any line ministry, according to the lawmaking process accorded by Law 12/2011 on the Establishment of Laws and Regulations. Line ministries are also responsible for overseeing the implementation of regulations in the field of competence.

According to the lawmaking process of Indonesia, a draft regulation must be accompanied by an explanatory description and/or academic research paper (Republic of Indonesia, 2011[4]). The research paper should include an introduction (background, problem identification, objectives and methods), theoretical studies and empirical practices, evaluation and analysis of regulations, the range, the direction of the regulation, sociological and juridical aspects, the scope of material content of local laws and regulations, and the conclusions and suggestions. Once these have been prepared, the Ministry of Law and Human Rights proceeds with the preparation of the Bill. Draft bills can be presented to the House by the House itself, the President or the Regional Representative Council (DPD).

Regulatory policies are drafted according to the principles and objectives of Law 12/2011 on Establishment of Laws and Regulations (Box 4.2).

Box 4.2. Main principles and objectives of regulatory policies in Indonesia

Law No.12/2011 stipulates regulatory policymaking in Indonesia and describes:

  • Principles and objectives of the regulatory system.

  • Process of regulatory formation.

  • National planning for legislative and regulatory frameworks.

  • Requirements for mandatory impact assessments.*

  • Harmonisation of regulations at national and sub-national levels.

The main principles (Article 5 of Law 12/2011) are as follows:

  • Clarity of purpose.

  • The appropriate institutional or forming authority.

  • Suitability between type, hierarchy, and content material.

  • Can be implemented.

  • Usability and effectiveness.

  • Clarity of formulation.

  • Openness.

The main objectives (Annex I of Law 12/2011) are as follows:

  • Identifying and providing solutions to issues faced by citizens, the nation and state.

  • Formulating the legal issues faced as a premise to the draft regulation.

  • Considering the philosophical, sociological, and juridical aspects of the draft regulation.

  • Formulating the objectives of the draft regulations, including its scope, range and direction.

* Law 12/2011 is an amendment of Law No. 10/2004. The mandatory impact assessment in this Law refers to the compulsory academic paper/analysis that must accompany each draft bill or regulation.

Source: Republic of Indonesia (2011), Law 12/2011 on Establishment of Laws and Regulations, Jakarta.

The Ministry of Law and Human Rights is in charge of co-ordinating the lawmaking process, as well as carrying out regulatory reform activities and ensuring the quality of legislation, legal services and law enforcement. The Ministry of Law and Human Rights also delivers regular training on Regulatory Impact Assessments (RIA Law No. 12), cost-benefit analysis (in partnership with the academe) and provides advice and support to governments on SME issues and smart regulation. The Ministry of Law and Human Rights often serves as an oversight body that analyses regulations.

The Ministry of Home Affairs is responsible for co-ordinating local and central authorities on regulatory development and implementation.

Laws and regulations relevant for SMEs

Business regulatory policies are generally the same for enterprises of all sizes. Where SME-specific regulatory policies exist, it is usually to give additional government support or incentives to smaller businesses. According to the Co-ordinating Ministry for Economic Affairs (CMEA), the main difference between general business regulatory policy and SME regulatory policy is that the government intervenes more for SMEs to give preferential treatment or support, such as access to dedicated channels of finance.

There is a dedicated SME ministry called the Ministry of Co-operatives and SMEs, which serves as the focal point for SME and entrepreneurship development. It offers support and advisory services to SMEs in the areas of government policy, regulations, business development, financing, insurance and partnerships. According to Presidential Regulation No. 9, the Ministry of Co-operatives and SMEs is responsible for “assisting the President in formulating policies and co-ordinating policies in the field of co-operatives and small and medium businesses” (APEC, 2018[5]).

According to Law 20/2008 on Micro, Small, Medium and Large Businesses referenced by the Ministry of Co-operatives and SMEs, MSMEs (micro, small, and medium enterprises) are defined according to Table 4.3.

Table 4.3. SME definition in Indonesia based on Law 20/2008


Based on Law 20/2008

Measurement of statistical agencies

Turnover (IDR)

Assets (IDR)



Max 300 million

Max 50 million

land and building excluded

1-5 people


300 million – max 2.5 billion

50 million – max 500 million

5-19 people


2.5 billion – max 50 billion

500 million – max 10 billion

20-99 people

Sources: Provided to the OECD by the Ministry of Co-operatives and SMEs, 2017; Ediningsih, N. (2012), Women Empowerment in Cooperative and Entrepreneurship Indonesia,

However, there are 22 ministries involved in developing and/or implementing regulations relevant to SMEs. Ministries may define or interpret SME-related regulation and regulatory policies differently, depending on their respective needs. For example, some ministries need only to identify SMEs according to the size of their workforce for tallying purposes. Other ministries, such as the Ministry of Finance, may require more detailed data on company turnover or assets for taxation purposes and track data accordingly.

For example, another generally accepted definition of SME (or UKM, Usaha Kecil dan Menengah) is set out in the Small Enterprise Act 9/1995 (Undang Undang Republik Indonesia Nomor 9 Tahun 1995 Tentang Usaha Kecil) whereby an SME in any sector is defined as:

  • A business that owns net assets worth IDR 200 million or less. However, these assets shall not include land or buildings.1

  • Annual Sales of IDR 1 billion (net) or less.2

  • Owned by a citizen of Indonesia.

  • An independent economic entity, which is not a subsidiary or branch of a large or medium enterprise and is not directly or indirectly controlled (including where the operator is dispatched from a large or medium enterprise) by a large or medium enterprise.

  • The business is managed by an individual, an unincorporated entity, or a co-operative organisation.

As SMEs are subject to general business regulations as well as to sectoral regulations, SMEs may have as much as or more engagement with technical ministries compared with the Ministry of Co-operatives and SMEs. The Ministry of Co-operatives does offer needed support to SMEs as well as SME policy planning, but its small staff and financial capacity pall in comparison with the much larger Ministry of Trade and Ministry of Commerce, etc. Table 4.4 presents an overview of all the different ministries and agencies that are involved in SME policy or regulation.

Table 4.4. Ministries and agencies involved in SME policy and/or regulation





Ministry of Co-operatives and SMEs

Focal point of SMEs and entrepreneurship development in Indonesia


Ministry of National Development Planning (BAPPENAS)

Strategy planning and development of SME and Entrepreneurship


Co-ordinating Ministry of Economic Affairs (CMEA)

SME and entrepreneurship strategy co-ordinator


Central Bank of Indonesia (BI)

Macro-financial policy maker


Financial Services Authority (OJK)

Providing alternative financial access and programme for SME


Statistic Indonesia (BPS)

Centre of SME and entrepreneurship data


Ministry of Trade (MoT)

Policy and programme related to market access and promotion for SME and entrepreneurs


Ministry of Industry (MoI)

Policy and programme related to market access and promotion for SME and entrepreneurs


Ministry of Finance (MoF)

Fiscal policy and financial access for SME and entrepreneurs


Ministry of Manpower (MoM)

Policy and programme related to employment, and programme to improve SME productivity


Ministry of Research, Technology, and Higher Education (MoRTHE)

Policy and programme related to entrepreneurship, and SME business incubator and technology


Ministry of Education and Culture (MoEC)

Entrepreneurship education for elementary and secondary school


Ministry of Youth and Sports (MoYS)

Policy and programme for special target (youth) SME and entrepreneurs


Ministry of Communication and Informatics (MoCI)

Policy and programme for promoting SME digitalisation


Ministry of Social Affairs (MoSA)

Policy and programme for special target (disabilities) SME and entrepreneurs


Ministry of Female Empowerment and Child Protection (MoFECP)

Policy and programme for special target (women) SME and entrepreneurs


Creative Economy Agency (BEKRAF)

Policy and programme of creative SME and entrepreneurs


Ministry of Environment and Forestry (MoEF)

Program dan kebijakan UKM dan Kewirausahaan - Social Forestry Programme


Ministry of Home Affairs (MoHA)

Main co-ordinator of policy implementation among local government on SME and entrepreneurship


Agency for the Assessment and Application of Technology (BPPT)

Promote technology development for the benefits of SME and entrepreneurs


Public Procurement (LKPP)

Policy related to involvement of SME in public procurement


Indonesia Stock Exchange (IDX)

Programme and policy related to capital market targeted for SME


Investment Coordinating Board (BKPM)

Policy and programme related to investment for SME


Indonesia Eximbank (LPEI)

Policy and programme to facilitate financial support for SME export


Credit Guarantee Indonesia (Jamkrindo)

Programme and policy of SME ratings and related with SME credit guarantee


Commission for the Supervision of Business Competition (KPPU)

Monitor and supervise business competition among SMEs


Indonesian Chamber of Commerce and Industry (KADIN)

SME representatives


Local government

Manage and implement the policy of the SME and entrepreneurship

Source: Provided to the OECD by the Ministry of Co-operatives and SMEs, 2017.

Highlights of regulatory opportunities and challenges to support SMEs

Regulatory clarity

The multitude of agencies involved in SME-related policies and regulations can and does result in confusion about their implementation and oversight. Given that all ministries are at the same level in the government hierarchy, none can claim to have final authority on how to define or implement SMEs regulations or regulatory policies. When disputes arise, it is up to the concerned ministers to discuss and agree amongst themselves how to go forward, and consensus is not always reached.

It is unclear which ministry is in charge of supervising compliance with SME regulatory policies. It appears that there is no clear authority for the oversight of regulatory compliance. There also do not appear to be penalties or sanctions imposed on ministries that fail to comply with or implement regulatory policies, as there is no clear authority to enforce compliance or deliver sanctions.

Nevertheless, the National Development Planning Ministry (BAPPENAS) has recently been assigned a new role to integrate programmes that fall under the priorities of the President. Government Regulation 7/2017 requires programmes under the Annual Government Work Plan (RKP) down to the Ministry/Agency Work Plan (RKL) to have an integrated system of planning. BAPPENAS collaborates with the Ministry of Finance and the Ministry of Administrative Bureaucratic Reform on integrated data planning, budgeting, and performance indicators. A Ministerial Regulation 9/2017 then followed to instruct on the Procedures for Formulating and Reviewing the Work Plan of Ministries and Agencies (Article 29, paragraph 1). Ministries are currently using an information system called KRISNA to collect the information required to synchronise the planning and budgeting process, including inputs into the relevant regulatory frameworks (see section on regulatory quality management).

Regulatory delivery

Preparations for the planning and budgeting of national development programmes are transitioning from a function-based budgeting approach to a programme-based “Money Follow Program” approach. According to Article 3 of Government Regulation 17/2017 on the Synchronisation of the National Development Planning and Budgeting Process, programme-specific performance-based budgeting will be applied to budgeting, regulatory, and general service and investment frameworks.

Presidential Regulation 98/2014 has a section on licensing for micro, small, and medium enterprises (MSMEs) which delegate authority to districts and villages to implement regulatory support for MSMEs and shall be accounted for on the national and regional budgets. The regulation is intended to provide legal certainty as a way to empower MSMEs in setting up business, by defining the scope of responsibilities, provisions, and charges that could be applied or waived for MSMEs and by whom. The regulation also outlines the reporting hierarchy for administrators from the village level up to the minister level.

Regulatory compliance

According to ministries interviewed for this study, a significant challenge faced by regulating authorities is that SMEs may not know much about regulations from the first instance. There is often a lack of awareness about the existing of regulations, or the whys and how of compliance. For example, according to the Ministry of Co-operatives and SMEs, some SMEs may prefer to sell to larger enterprises within Indonesia in believing that the procedures to export products out of the country are more complex, when this may not necessarily be the reality. Officials from other ministries have also suggested that too many officers may be involved in the export process, adding complication through multiple layers of compliance and fees.

Many SMEs also do not see the value of registering their business and prefer to stay in the informal economy. More specifically, SMEs do not necessarily see differences in the incentives that they can gain from registering. The lack of registration impedes ministries and business associations from effectively matching SMEs to programmes (be it financing programmes, matching programmes with large enterprises, tax incentives, subsidies, etc.). Some policymakers interviewed by the OECD have pointed out that some SMEs are sceptical of government reach and believe that business registration is intended to extract benefits and taxes from SMEs, rather than for recording information to make better policies to support SME growth.

Even where SMEs are aware of regulations, compliance can be weak. SMEs are expected to comply with a large number of licences, permit, inspection requirements, often from multiple ministries. Confusion over or complexity (or perceived complexity) of regulatory processes contributes to weak or non-compliance.

Moreover, while there may be fines in regulations, in practice there are rarely sanctions imposed on SMEs. According to BAPPENAS, they do not levy sanctions or fines for failure to implement regulations. They simply advise, review and administer budgets to line ministries.

The CMEA tends to allow small companies to operate as they wish without imposing too many regulations or penalties for regulations, as long as they are not interfering negatively with the local economy.3 It is only when companies grow to a medium size that they face more regulatory checkboxes to meet and thereby regulatory barriers. For comparison, the key challenge noted by the Ministry of Trade for large enterprises is access to a more educated labour force. By and large, the large companies usually always comply with regulations as they don’t want to take the sanctions and risks associated with non-compliance.

Compliance with standards

The National Standardisation Agency of Indonesia (Badan Nasional Standardisasi, BSN) is a non-ministerial government institution that is accountable to the President. The BSN is responsible for developing and promoting national standards. It also represents Indonesia in the International Organisation for Standardisation (ISO).

Meeting labelling requirements/sanitary and phytosanitary standards (SPS) is an issue, as identified by the Co-ordinating Ministry for Economic Affairs (CMEA). There is a range of guidelines and requirements that exist regionally and internationally that increase the burden of compliance for SMEs.

There are no current plans or programmes to harmonise or streamline sanitary and phytosanitary requirements (i.e. requirements certification, licensing/product certification, labelling requirements, inspections and testing, etc.) at the national or regional levels.

Enforcement and inspection

Different line ministries and levels of government conduct their own enforcement and inspection of regulatory delivery and compliance. National and sub-national governments work together to co-ordinate the implementation of SME policies.

The CMEA serves as the central oversight ministry responsible for co-ordinating, synchronising and monitoring the performance and functions of various technical ministries that play a role in economic issues. The CMEA is also responsible for maintaining policy harmonisation and programmes to achieve its objectives. It may conduct local visits to ensure that policies are implemented well. The CMEA conducts inspections twice a year to check compliance with regulations in special economic zones, where budget avails.

According to the office responsible for licences in the Ministry of Trade, companies are expected to send a report every semester with information on their licence number, name of business and number of company registration. They are required to register on an online portal, which is now implemented in around 60 districts. In the case of non-compliance, the Ministry of Trade would send a letter of notification to the offending business. Otherwise, the Ministry of Home Affairs is the one that can impose penalties.

For the Ministry of Trade, they check if the Ministerial Decree is implemented by sending officers to check if regulations have been complied with in the 514 districts that it covers, although the number of districts visited in a given year depends on the budget. According to an interview with the Ministry of Trade, on average, they conduct some 30 inspections per year.

There is an effort in place to evaluate the performance of inspection authorities. At the end of each year, the government has to submit two reports: the first about the activities in sectoral departments; the second about the local government. Then, a department responsible for monitoring public service should measure the public satisfaction index.

Administrative simplification

Administrative simplification is one of the key tenets of the 16 Economic Policy Packages issued by the President to date. According to a monitoring report from the Office of the Presidential Staff (KSP), of the 8 811 regulations affected by the policy packages, 1 133 are related to licensing and investments. Details of achievements from the policy packages up to December 2016 are as follows: based on the report up to December 2016 through the Monitoring System at the Office of the Presidential Staff (KSP), out of 8 811 regulations, 1 133 of these regulations were on licensing and investment. Achievements of the policy packages up to the end of 2016 include 324 revoked regulations and 75 revised regulations.

Since 2016, the government has been working on implementing a One-stop Integrated Service (PTSP) which provides a single portal via which businesses can submit and obtain multiple licences at once (Box 4.3). For businesses operating outside of special designated areas (special economic areas, free trade zones, tourism and industrial areas), the PTSP helps to expedite the licensing process through its data sharing system, which can then be synchronised between institutions. The government will also implement an Integrated Single Submission Licensing System (ISSS), where submitted data will eventually be integrated with various services in Indonesia ranging from citizen to business registration, to taxes and import-export. A pilot of the ISSS is planned for January 2018. The ISSS and PTSP will be located in the same building.

Box 4.3. Regulatory simplification for licensing and investment in Indonesia

Following from President Joko Widodo’s instruction to central and local governments to undertake progressive regulatory cuts in December 2015, the National Development Planning Agency, Indonesia (BAPPENAS) issued a letter to all ministries, agencies and local governments that outlined a framework for implementing regulatory simplification in the field of licensing and investment. Subsequently, the 2016 programme for regulatory simplification in licensing and investment called for 20 ministries and agencies to support the establishment of a One-Stop Service Centre (PTSP) at the Investment Coordinating Board (BKPM) (Republic of Indonesia, 2015[7]):

  • Investment Coordinating Board (BKPM)

  • Food and Drug Supervisory Agency (BPOM)

  • National Standardisation Agency of Indonesia (BSN)

  • Ministry of Agrarian and Spatial Planning

  • Ministry of State Owned Enterprises

  • Ministry of Energy and Mineral Resources

  • Ministry of Law and Human Rights

  • Ministry of Maritime Affairs and Fisheries

  • Ministry of Health

  • Ministry of Manpower and Transmigration

  • Ministry of Finance

  • Ministry of Communication and Informatics

  • Ministry of Environment and Forestry

  • Ministry of Tourism

  • Ministry of Public Work

  • Ministry of Education and Culture

  • Ministry of Trade

  • Ministry of Transportation

  • Ministry of Industry

  • Ministry of Agriculture.

Source: Republic of Indonesia (2015), Presidential Instruction 4/2015 Concerning the Implementation of One-Stop Service Centre (PTSP), Jakarta.

As of 2018, integrated business licensing and permitting services are in the process of being unified in an online single submission (OSS) system at Indonesia’s Investment Coordinating Board (BKPM) following Presidential Instruction 91/2017. BAPPENAS is supporting the CMEA to implement the OSS (BKPM, 2018[8]).

Prior to the OSS, Indonesia has already introduced one-stop shops across the country to consolidate the delivery of government services to support business start-ups, including information about regulations and their requirements, licensing and permit issuance. Notable examples are Jakarta and Surabaya.

Regulatory quality management

BAPPENAS takes a leading role in regulatory quality management at the national level. BAPPENAS exercises regulatory supervision via defining the national programme and budget planning, which includes setting goals, directions and prioritisation for national development policies and programmes. The Minister of BAPPENAS and the Minister of Finance jointly review the budget framework for all ministries. This involves reviewing the implementation, performance, and budget expenditure for programmes undertaken in the previous year, which then helps to inform budget allocations for the present year and forecast for the next year (Republic of Indonesia, 2017[9]).

According to Law No. 23/2014 on the Local Government, there are two tiers of assessments of regulatory quality. The first is in the province for district-level regulation, and the second in the Ministry of Home Affairs for provincial-level regulation. It is unclear to what extent these regulatory quality assessments are carried out, as there is no tracked data. Furthermore, the Ministry of Home Affairs does not have the mandate to repeal regulations that are found to be of low quality.

The government plans to help synchronise and simplify business licensing for MSMEs, for example by amending the delegation of authority in Presidential Decree 98/2014 (CMEA, 2016[10]).

New Presidential Decrees do not automatically override existing regulations, which means that they may also risk adding administrative burden if older or outdated regulations are not repealed.

BAPPENAS is currently collaborating with Pelita Harapan University to conduct research on the quality of regulations related to SMEs. The research will conduct a cost-benefit analysis (CBA) of the qualitative and quantitative aspects of some 60 regulations related to SMEs that have been issued by various ministries. The objective of the work is to identify overlapping regulations and provide policy recommendations to the CMEA.

Following from Ministerial Regulation 9/2017 on the Procedures for Formulating and Reviewing the Work Plan of Ministries and Agencies, the introduction of the KRISNA integrated information system aims to incorporate submissions to support efficient and suitable regulatory development. Proposed regulatory frameworks for the work plans – which would be input into KRISNA – must meet various criteria according to legal need, urgency and benefit to society (including support to development targets), and burden (including a CBA). The submitted information will help inform the upstream regulatory development process and serve as a basis for regulatory impact analysis/assessment (RIA) that can be incorporated into planning documents.

Regulatory impact assessment

Presidential Instruction (InPres) 7/2017, effective as of 1 November 2017, requires ministers, high-ranking officials and heads of agencies to:

  • Report any new regulations they want to issue to the relevant co-ordinator’s office and/or President.

  • Undertake regulatory impact analysis (including risk analysis) and conduct public consultations for new regulations.

A manual or guidance is available for governments to use when developing RIA for major regulations. When developing RIA, regulators are required to identify the costs and benefits of a new regulation. These are often conducted by ministries, with the assistance of academic institutions. Instead of a standard RIA form, ministries or regulators present this cost and benefit analysis via an academic paper.

A more recent Cabinet Secretary Regulation 1/2018 highlights the importance for ministries to implement RIA – both ex ante and ex post – during the development of regulations.


Information and communication technology (ICT) is widely used across the Indonesian government. Most if not all ministries and agencies have their own websites offering information including services, media updates, online rules and regulations, and contact forms. A number of ministries also provide comprehensive databases on legislation and regulations online (Box 4.4). However, there is currently no single website that provides businesses with consolidated information on regulatory policies and procedures. As such, database users can spend significant amounts of time searching for regulatory information across government websites, which may not necessarily be aligned with one another.

Box 4.4. National regulatory databases in Indonesia

Several institutions manage national regulation databases as stipulated by law:

  1. 1. The Ministry of Law and Human Rights, represented by the General Directorate of Legislation and Regulation, was mandated in Ministry Regulation of Law and Human Rights No. 1/2007 to publish and disseminate information about legislation. It has responsibilities to update regulation that are stipulated by the President (Law, Government Regulation and Presidential Regulations).

  2. 2. The Ministry of State Secretariat and Cabinet secretary have the same role as the General Directorate of Legislation and Regulation, according to Presidential Regulation No. 1/2007.

  3. 3. The National Legal Development Board was mandated by Presidential Regulation No. 33/2012 to develop the National Legal Information Documentation Network system. This system comprises members from various institutions, including law department or units dealing with legal documentation in state institutions, central and local government, law libraries in both private and public universities. Board members are responsible for developing and managing the law information system. The system provides regulations as well as their accompanying academic papers.

Regulations at the national level are updated regularly by the institutions above. Regulations at the local level are not always updated (Ministry of Law and Human Rights, 2018[11]; Ministry of State Secretariat and Cabinet, 2018[12]).

Sources: Ministry of Law and Human Rights (2018), Peraturan Database; Republic of Indonesia (2018), Database of Laws and Regulations,; Ministry of State Secretariat and Cabinet (2018), Peraturan,

Indonesia has completed successful pilot and parallel tests of its National Single Window (NSW). As of April 2017, its protocol and legal framework have been ratified by most ASEAN member states, and its Operation and Certification Procedure for the e-ATIGA Form D Certificate of Origin has been endorsed (UNESCAP, 2017[13]). The Indonesia NSW will soon extend to other documents including SPS and certificates of health. The proposed Indonesian NSW will integrate It will also provide comprehensive information on taxes, trade quotas, rates, rules of origin, product standards, statistic and trade activities between Indonesia and other countries.

There is currently no single website that provides SMEs with updated information on regulatory procedures. Multiple government websites offer information on various topics (export, licensing, permit procedures) but may not necessarily be aligned with each other. The government is currently working to synchronise the different investment regulations and online systems that vary from ministry to ministry. Indonesia plans to launch an online single submission (OSS) system which will include comprehensive information on investments, licences, facilities and complaints. A number of ministries are already integrating their systems into OSS Indonesia, which will begin operation in April 2018 (Jakarta Post, 2018[14]).

Stakeholder engagement

According to the lawmaking process of Indonesia, a legislative session is often organised for consultation. This session includes an inter-ministerial committee, experts and stakeholders, and aims to provide stakeholders with a platform to discuss the draft regulation and its accompanying academic paper. A public hearing is also arranged (according to the national legislation programme or prolegnas) before the enactment of a regulation in order to obtain input from the community/public on the draft regulation.

Several online databases for public consultations have been introduced in Indonesia, to allow individuals to provide comments or complaints on draft or existing regulations. Examples include:

  • Partisipasi Publiik (Ministry of Law and Human Rights)

  • Legal Smart Channel

  • Konsultasi Hukum Online

  • Hukum Online.

Hukum Online, which has grown extensively over time, uploads draft regulations on line and features legal experts who are part of the community and who provide comments and suggestions (BPHN, 2018[15]).


If disputes between national and sub-national governments or between ministries arise over a regulation or regulatory policy relating to an economic issue, the CMEA will co-ordinate with the relevant parties to discuss whether to revise or abolish the regulation or regulatory policy.

Disputes or conflicts over an SME regulation may be taken to the Constitutional (for national regulations) or Supreme Court (for local regulations). Articles or regulations deemed burdensome may be challenged in either court. The courts would examine the problem as well as the regulation. The courts may invite an expert to give suggestions. Judgments are published on the court websites.

Judicial review could be triggered by SMEs that disagree with regulations or regulatory decisions.


  • Clarify the roles and responsibilities of ministries involved with SME regulatory policies, including setting out a clear co-ordination pathway for decision-making. This includes the Co-ordinating Ministry for Economic Affairs, BAPPENAS, the Ministry of Co-operatives and SMEs but also the other 20-plus ministries and agencies that are also involved in SME policymaking.

  • Harmonise the definition of SMEs across ministries to reduce confusion or inconsistent applications of regulatory policies to SMEs by different ministries.

  • Develop a framework for dealing with regulatory non-compliance, which should be consistently applied. This could be a risk-based system.

  • Continue consolidating the numerous databases and platforms that house business and investment regulations and processes across different ministries.

  • Systematically assess the impact of regulations, which could be risk-based and proportional, and document this information in a centralised portal that could be shared with other ministries.


[5] APEC (2018), Ministry of Co-operatives and SMEs,

[3] BAPPENAS (2015), Evaluation of the RPJMN 2015-2019,

[8] BKPM (2018), Investment Policy Updates: Presidential Regulation No. 91/2017 on Acceleration of Doing Business,

[15] BPHN (2018), Kemeterian Hukum dan Ham Republik Indonesia,

[10] CMEA (2016), Siaran Pers - Kebijakan UMKM Harus Menyeluruh dan Terarah,

[6] Ediningsih, N. (2012), Women Empowerment in Cooperative and Entrepreneurship Indonesia,

[14] Jakarta Post (2018), Indonesia to Have World's Best OSS System,

[1] Ministry of Administrative and Bureaucratic Reform (2015), Roadmap of Bureaucractic Reform 2015-2020, Regulation No. 11/2015, Jakarta.

[11] Ministry of Law and Human Rights (2018), Peraturan Database,

[12] Ministry of State Secretariat and Cabinet (2018), Peraturan,

[16] Republic of Indonesia (2018), Database of Laws and Regulations,

[9] Republic of Indonesia (2017), Presidential Regulation No.17/2017, Jakarta.

[7] Republic of Indonesia (2015), Presidential Instruction 4/2015 Concerning the Implementation of One-Stop Service Centre (PTSP).

[4] Republic of Indonesia (2011), Law 12/2011 on Establishment of Laws and Regulations.

[13] UNESCAP (2017), Indonesia National Single Window,

[2] World Bank (2018), Ease of Doing Business Rankings,


← 1. According to the Small Enterprise Act 9/1995, this criterion may change according to economic conditions in Indonesia.

← 2. Ibid.

← 3. Interview with OECD.