On 5th October 2020, the Joko Widodo administration passed the Omnibus Law on Job Creation (Law Number 11 of 2020). This law aims to simplify the complex regulatory landscape to encourage investment and create employment. The Omnibus Law on Job Creation has implications on changes in regional authority and the business process of business licensing services in the regions.
With regard to regional autonomy and business licensing, a policy research institute that has long been conducting research and advocacy in this field, namely the Regional Autonomy Monitoring Committee (KPPOD), has had concerns from the beginning about the draft Omnibus Law. Concerns arose from the Omnibus Law’s efforts to centralize authority with the central government, including those related to business licensing. Thus, KPPOD was involved in the development of the Omnibus Law since the beginning. KPPOD’s has successfully advocated for the revision of the Omnibus Law Bill to return certain powers to the regions. This is an important achievement. Without the changes advocated by KPPOD, the Omnibus Law will undermine the Constitution and set Indonesia back 20 years in its regional autonomy regulation.
KPPOD analyzed the draft Omnibus Law and prepared a Background Note and a problem inventory list which is sent to the House of Representatives and key ministries. From this list, the government adopted six specific recommendations from KPPOD into the Omnibus Law on Job Creation.
First, regarding the president’s authority over the regions. The initial draft of the Omnibus Law stated that the president could delegate authority to the regions. KPPOD deems that giving authority to the President to delegate authority to regions poses risks for the implementation of regional autonomy. This can potentially violate the constitution because the president can later withdraw the delegation and transfer of functions to the regions. In terms of business licensing regulations, this also creates uncertainty regarding which level of government has the authority to issue permits. KPPOD recommends that the three clauses in the Omnibus Law regarding the delegation of President’s authority to regions be removed. This recommendation was partially followed in the Omnibus Law by removing one of the three problematic clauses.
Second, the president’s authority to amend the Omnibus Law. According to an official from the DPR Expertise Agency interviewed, the initial draft of the Omnibus Law gave the president the power to amend the Omnibus Law. KPPOD deems that this would violate the constitution, because amendment of laws should go through the parliament by revising or creating a new law.
Furthermore, KPPOD's recommendation is related to the president's authority to cancel problematic regional regulations. KPPOD recommends removing the clause stating that the president can revoke regional regulations as this would violate the Constitutional Court (MK) Decision Number 137/PUU-XIII/2015 and Number 56/PUU-XIV/2016 which stipulates that only the Supreme Court (MA) can invalidate local regulations. The KPPOD recommendation was adopted by removing clauses related to the revocation of regional regulations by the president.
Fourth, KPPOD provides recommendations related to Norms, Standards, Procedures and Criteria (NSPK). NSPK regulates the level of government authority and procedures, time and cost of business licensing services. The initial draft of the Omnibus Law stated that the NSPK could be delegated to regions. KPPOD thinks this is problematic because the NSPK is designed as a national standard that must be applied by regions, not delegated to them. For this reason, KPPOD recommends that NSPK shall be maintained as a national standard. Regions must develop NSPK in line with the standards set at the national level. This recommendation was later partially adopted in the Omnibus Law which states that the central government will issue NSPK based on best practices from the regions.
The initial draft of the Omnibus Law authorized the central government to issue basic (spatial, environmental, and building) and sectoral business permits. KPPOD deems that this provision violates the Constitution and Law 23/2014 on Regional Government, which gives authority to regions to regulate and manage government affairs in accordance with the provisions of statutory laws and regulations, including matters of investment (business licensing). Transferring authority to the central government will add to the time it takes to obtain business licenses, and reduce local government control over development and the revenues they receive from issuing business licenses. This will certainly make it difficult for businesses to get a business license.
The fifth recommendation of KPPOD is the division of authority for the administration of (basic and sectoral) business licensing according to the principles of efficiency, accountability, and externality. Based on this principle, each level of government (central and regional) shares the authority in the provision of licensing service. For example, the central government will issue permits to businesses that operate or have an externality impact across provinces; provinces have the authority to grant business permits that have impact across regencies/cities; and districts/cities issue business permits for operations that have no external impact on other regions.
Sixth, KPPOD’s recommendations adopted in the Omnibus Law on Job Creation are related to the recipient of business license revenue (levies). The initial draft of the Omnibus Law gave the right to the central government to collect levies from business permits issued for buildings (IMB retribution). KPPOD deems that this arrangement robs local governments of revenue and was not in accordance with the nomenclature for new business permits (building approval). Therefore, KPPOD advocates that regions (districts/cities) retain the authority to issue and receive revenue from these business licenses.
The KPPOD managed to influence the revision of the Omnibus Law Bill through an advocacy process that has been carried out since March 2020. On 5 March 2020, KPPOD held a focus group discussion (FGD) with senior officials from key ministries to present an analysis of the implications of the law for regional autonomy and business licensing. Furthermore, KPPOD compiled background notes and an Inventory of Issues (DIM) to prepare recommendations for the revision of the bill. KPPOD then held a series of public discussions to present the DIM and invited input from stakeholders. The DPR and the main ministries were invited to listen to the discussions directly. In a series of public events, KPPOD also invited the mass media to cover their recommendations. The DIM and background notes that KPPOD completed and issued in August were then sent to the House’s Expertise Body, the Legislation Body, and all factions in the DPR.
Besides the central policy makers, KPPOD is also involved in advocacy with local governments and local government associations (APEKSI, ADEKSI, ADKASI, APKASI). KPPOD presented the drafted DIM to raise awareness about the Omnibus Law and its implications for local governments and encourage the local governments to advocate on this issue. In September 2020, the advocacy for recommendations to the DPR was carried out together with local governments, local government associations, and Katadata. KPPOD also conducts advocacy with another civil society organization, namely Pattiro.
KPPOD’s involvement in the Omnibus Law process was appreciated by the relevant policymakers. An official from the DPR Expertise Body believes that KPPOD has an important role to play in maintaining democracy and decentralization in Indonesia through research and advocacy. Furthermore, officials from the Coordinating Ministry for Economic Affairs appreciated KPPOD’s expertise in business licensing and regional autonomy, and its role as a ‘discussion partner’ which has helped enrich the ministry’s thinking and make them more confident to engage with other ministries. He also appreciated KPPOD’s ability to understand the needs of the central government when discussing regional autonomy issues.
The Omnibus Law has indeed received a lot of public attention, but much of it is focused on labor issues, not regional autonomy. The DPR Expertise Body noted that apart from KPPOD, other stakeholders advocating for regional autonomy were the local government association and local parliaments. These stakeholders were encouraged by KPPOD to be involved in advocacy. KPPOD noted that the Business Associations also advocated for business licensing issues. However, their focus is more on matters of procedure, cost, and time than on the authority to issue permits. KPPOD’s close access to the House of Representatives and key ministries allows them to closely follow and influence the Omnibus Law process.
KPPOD’s next step is to continue advocating for local regulations and business licensing by being involved in drafting regulations on the implementation of the Omnibus Law related to NSPK, administration of business permits, and taxation.
Knowledge Sector Initiative (KSI) Contribution
KSI contributes to the knowledge-to-policy process in the Omnibus Law on Job Creation in three ways. First, KSI funding allows KPPOD to conduct research that provides an evidence base for advocacy and covers the costs required by KPPOD in the advocacy process. Second, through program logic sessions and evaluation and monitoring support, KSI helps KPPOD to advocate for policies more systematically. The process also helps KPPOD to better measure their activities and encourages KPPOD to integrate monthly reflective processes into their work. Third, KPPOD believes that KSI’s Phase 1 support and core grants have enabled KPPOD to strengthen the quality of their research, both individually and as an institution.