Indonesia implements fast track licensing for pharmaceutical and medical device sector during Covid-19 pandemic - CWG

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Rahmat Soemadipradja
Soemadipradja & Taher, Jakarta
rahmat_s@soemath.com

Aurora Aldwita Mariel
Soemadipradja & Taher, Jakarta
aurora_aldwita@soemath.com

Introduction

With the world facing uncertainty caused by the Covid-19 pandemic, there has been a significant spike in demand for pharmaceutical products and medical devices as countries rush to contain and mitigate the effects of the virus. As with many other countries, Indonesia currently faces issues in respect of providing an adequate supply of pharmaceutical products and medical devices for Covid-19 patients and personal protective equipment for healthcare workers. Recent measures taken by the Indonesian government in response to the issue now presents an opportunity for China in relation to the Indonesian pharmaceutical and medical device sector.

China’s opportunity in the Indonesian pharmaceutical and medical device sector

China is currently Indonesia’s strongest partner in the pharmaceutical and medical device sector. According to the Indonesian Pharmacists Association, Indonesia imports approximately 90–95 per cent of raw materials for medicines, of which 60–65 per cent of these are imported from China. A similar situation applies to medical devices, which are also mostly imported.

The shortage of pharmaceutical products and healthcare equipment supply in Indonesia during the pandemic presents a unique opportunity for China. According to data from the Directorate General of Customs and Excise, Indonesia has imported IDR777.5bn (approximately US$50m) worth of medical supplies and personal protective equipment since the start of the outbreak up to 19 April 2020, with imports from China accounting for just under two-thirds of the total value. Such imported goods include face masks, testing kits, medicine, hospital equipment and personal protective equipment.

Indonesian government incentives

To address the shortage in the domestic supply of pharmaceutical products and healthcare equipment, the government has issued certain regulations and policies intended to ease the import of such goods by way of relaxing the import process and implementing customs exemptions and tax incentives. To address the pandemic, the government established the Coronavirus Mitigation Acceleration Task Force, led by the Head of the National Disaster Management Agency (BNPB).^[1] The Agency is authorised to provide recommendations for the exemption of goods used to mitigate the Covid-19 outbreak ('Medical Goods') from generally applicable import procedures.

With a BNPB recommendation, a Medical Goods importer may receive the following facilities:

Simplification of import procedure

The importer will not be required to obtain a marketing authorisation or special access scheme licence from the Ministry of Health (MoH) and instead will only be required to obtain BNPB recommendation, pursuant to MoH Regulation No 7 of 2020.

Fiscal facilities

These may be in the form of: (1) an exemption of import duty and/or customs; (2) non-collection of VAT and/or sales tax on luxury goods; and (3) non-collection of article 22 income tax on imports (pursuant to Joint Standard Operational Procedure No.01/BNP/2020 or No KEP-113/BC/2020). However, these fiscal facilities do not apply if the Medical Goods are being imported for commercial purposes.

An importer may apply for the recommendation from BNPB through the Indonesian National Single Window’s website at www.insw.go.id. This fast-track route opens the door to both existing and prospective Chinese exporters to engage with the Indonesian market to fulfil the urgent needs of the Medical Goods and open a path to future business in Indonesia.

This momentum may also be used by investors from China who are interested in entering the Indonesian pharmaceutical and medical industry. The Indonesian Investment Coordinating Board (BKPM) recently issued BKPM Decree No 86 of 2020 which aims to ease the process to obtain business permits in certain business sectors, including pharmaceutical and medical devices sectors, by: reducing and/or facilitating business permit requirements; accelerating the business licensing process; and providing special assistance services.

Note that certain lines of business are subject to foreign investment restrictions. These include: (1) finished drugs manufacture, which is limited to 85 per cent foreign ownership (however, 100 per cent ownership is permitted for manufacture of raw material for pharmaceutical products); and (2) Class A medical device manufacture (eg, wadding, bandages, gauze, walking sticks/canes, infusion stands, sanitary napkins, adult incontinence pants, hospital beds, and wheelchairs), which is limited to 33 per cent foreign ownership. However, the manufacture of Class B-D medical devices are open to foreign investment subject to approval from MoH. The classification for medical devices is based on the risk posed by the device to a patient, ranging from class A (low risk) to class D (high risk). For example, surgical masks and surgical gloves are classified as Class B medical device.

Conclusion

While the Covid-19 pandemic has caused a great deal of unprecedented disruption, it has also created opportunities, including in the pharmaceutical and medical device sectors. The fast track export approval and licensing regime introduced by the government presents an interesting opportunity for China’s exporters and investors.