Newsletter

13 September 2021

Summary on Job Creation Law: Ease, Protection, and Empowerment of Cooperatives and Micro, Small, and Medium Enterprises (MSMEs/UMKM)

The government issued Law No.11 of 2020 concerning Job Creation which, in Chapter V, regulates the Ease, Protection and Empowerment of Cooperatives, Micro, Small and Medium Enterprises.

| Margaret Rose

Regulations on Cooperatives and MSMEs/UMKMin Indonesia were previously regulated respectively through Law No.25 of 1992 concerning Cooperatives (Law 25/1992) and Law No.20 of 2008 concerning Micro, Small and Medium Enterprises / MSMEs (Law 20/2008).

On November 2, 2020, the government issued Law No.11 of 2020 concerning Job Creation (Law 11/2020) which, in Chapter V of this Law, regulates the Ease, Protection and Empowerment of Cooperatives, Micro, Small and Medium sized Enterprises.

In order to provide convenience, protection and empowerment of cooperatives and MSMEs, the Job Creation Law makes amendments and deletions to the prior laws, andstipulates several new regulations.

The facilities provided in the field of cooperatives include the requirements for the establishment of primary cooperatives, which arechanged from the previous minimum of 20 people to 9 people (Article 86 number 1 paragraph [1] of Law 11/2020, which amended the provisions of Article 6 of Law 25/1992).In addition, the digitalization of cooperatives is accommodated with a member list book in the form of written documents or electronic documents (Explanation of Article 86 point 2 which amends the Elucidation of Article 17 of Law 25/1992).This digitization also accommodates members to conduct member meetings virtually online (Article 86 point 4 which amends the provisions of Article 22 of Law 25/1992). This digitalization system should certainly facilitate the operation of cooperative operations, particularly in these times of the pandemic.

The Job Creation Law also provides additional regulations that support the establishment of cooperatives with Sharia principles, given that the activity of Sharia businesses has increased. This regulation fully accommodatesorganizational instruments, ranging from: cooperative business activities, to the sharia supervisory board (Article 86 point 3 which amends the provisions of Article 21 of Law 25/1992 and number 6 which inserts Article 44A between Articles 44 and 45 of Law 25/1992).

Attention to MSMEs begins with the amendment ofArticle 6 of Law number 20 of 2008 concerning MSMEs, which regulates the criteria for such enterprises. In this previous provisions, the criteria for MSMEs only contained the maximum amount of net assets and annual sales. Meanwhile, inthe Job Creation Law the MSMEs is no longer required to have the maximum criteria for a number of netassets or its annual sales results

One of these criteria can be foundin Article 87 (1), which amendsthe previous provision by clarifyingMSME criteria related to business capital, turnover, net worth indicators, annual sales results, or investment value. Furthermore, the criteria for MSMEs could include incentives and disincentives, the application of environmentally friendly technology, local content, or the number of workers, according to the criteria set for each business sector.

In comparison, in the previous law on MSMEs, the government specified the criteria for MSMEs. In detail, micro-businesses are defined as those that have a net worth of at most Rp. 50 million, excluding land and buildings for the business, or have annual sales of at most Rp. 300 million. Small business are defined as those that have a net worth of more than IDR 50 million to IDR 500 million excluding land and buildings for thebusiness, or to have annual sales of between IDR 300 million andIDR 2.5 billion. Medium-sized businesses are defined as those that have a net worth of betweenRp. 500 million andRp. 10 billion, but not includingland and buildings for their business, or have annual sales of betweenRp. 2.5 billion andRp. 50 billion. The new Law is expected to expand these criteria, therebyincreasingthe number of business units that can be categorized as MSMEs

In addition, provisions for the ease of licensing for MSMEs are regulated in Article 91 of the Job Creation Law. This article explains that UMKM registration is carried out online or offline by attaching a copy ofan Identity Card (KTP) and a business certificate from the RT (Neighborhood Association, the lowest administrative unit). Furthermore, MSMEs can get a business identification number (NIB) through electronic business licensing. The NIB is a single license that applies to all business activities.

In particular for Micro and Small Business/UMK players, the Job Creation Law also provides several facilities and conveniences in managing their business activities, including: (i) simplifying tax administration, providing customs incentives for export-oriented businesses, and income tax reductions, in accordance with the provisions of laws and regulations - Laws in the field of Income Tax (Article 92); (ii) UMK activities can be used as program credit guarantees when applying for financing (Article 93); (iii) provision of legal assistance services. (Article 96); and (iv) training and assistance in the use of financial accounting systems/applications. (Article 98).

In addition, the law provides incubation of the creation and growth of new businesses as well as strengthening the capacity of beginner business actors, and assistance in increasingthe capacity of Micro, Small and Medium Enterprises so that they are able to access sources of financing. (Articles 99, 100 and 101).

Last but not least, the Job Creation Law also provides an allocation of Special Budget Funds to support empowerment and development activities of MSMEs. MSMEs now have greater opportunities in toll road rest areas and public infrastructure (terminals, airports, ports, stations, trains, and so on) so as to increase marketing access for MSME players. (Articles 103 and 104).

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