15 Feb 2021
Indonesian Competition Law: Draft Govt Regulation to Introduce Profit / Turnover-based Fines
As reported in an earlier competition law update, the reformist Job Creation Law (“JCL”), which was enacted on 3 November 2020, gives the Commercial Courts jurisdiction in appeals against decisions of the Indonesian Competition Commission (“KPPU”) and overhauls sanctions that may be imposed by the KPPU on violation of the Indonesian Competition Law (“ICL”).
As part of the implementation of the JCL, the Government has now issued a draft government regulation that provides further details on sanctions as well as the appeal procedure at the Commercial Court (“Draft GR”).
Specially, the Draft GR covers the following:
1. Sanctions criteria and type, and fines
Administrative Sanctions in General
The Draft GR basically confirms the KPPU’s authority to impose administrative sanctions on violations of the ICL. The sanctions should:
The Draft GR specifies the type of sanctions, as also listed in the ICL, and the violations to which they relate.
Specifically with regard to the annulment of an agreement with anticompetitive provisions, one of the administrative sanctions available under the ICL, it clarifies that the authority may do so in whole or in part, depending on the extent to which the agreement violates the ICL.
An interesting question still not addressed is how the KPPU can cancel a merger, consolidation or acquisition as part of merger control, another administrative sanction available under the ICL, as a closed transaction cannot be “unwound” from a corporate law perspective.
Fines as an Administrative Sanction
As per the JCL’s amendment of the ICL, fines as an administrative sanction are no longer capped. The Draft GR further stipulates that the fine of Rp 1 billion (approximately USD 70,000) constitutes a base fine, plus an element calculated as follows:
The KPPU may decide whether the fine should adopt the first or second alternative above, as well the maximum percentage of net profits, total sales, or a lesser amount, taking into account the principles discussed below.
Net Profit Value approach
If the calculation is based on net profit, the authority must take into account: (i) the activities of the undertaking; (ii) conditions in the relevant market; and (iii) the duration of the violation. Net profits are those earned by an undertaking after deduction of taxes and levies, as well as fixed costs directly related to the business activity concerned, based on statutory regulations.
Sales Value approach
If the calculation is based on sales related to a violation of the Law, the authority must also take into account the three factors set out above. Sales value is based on the value before the imposition of taxes or levies directly related to the sale of goods or services in the relevant market.
As the duration of a violation is an important factor when calculating the fine, the period of violation is based on the length of time over which the violation occurred. If fewer than 6 months, it is calculated as half a year. Conversely, if it is more than 6 months but not more than 1 year, it is treated as 1 full year. KPPU will then apply a coefficient to determine the violation per month, within a 1-year violation.
To ensure payment of KPPU-imposed fines, the relevant undertaking is required to post a bank guarantee of a sufficient amount at the time the KPPU's decision is announced. This obligation is not required if the undertaking accepts and implements the KPPU's Decision and does not file an appeal with either the Commercial Court or Supreme Court.
The Draft GR stipulates that fines in a final and binding KPPU decision constitute state receivables and must be deposited with the State Treasury as non-tax state revenue. The KPPU will coordinate with the government agency authorized to handle state receivables or law enforcement officials should a reported party not implement the KPPU decision.
Factors Determining the Fine
The Draft GR further stipulates that the fine is based on:
Mitigating factors comprise:
Aggravating factors are:
(Ability to pay takes into account a company’s ability to continue to operate after a penalty is levied on it.)
The KPPU may agree to some leeway in the payment of fines following a written application from an undertaking accompanied by supporting data (financial statements). The fine can be phased or paid within a certain period that takes into account the financial capacity or sustainability of the undertaking’s activities.
2. Clarity on timeline for appeal procedure at and transition to Commercial Court
Timeline objection procedure
The Draft GR provides legal certainty by clearly stipulating the term for the examination of an undertaking’s appeal against a KPPU decision. Prior to enactment of the JCL, a District Court handling an appeal against a KPPU decision had to render its decision within 30 days. This provision was removed by the JCL. The Draft GR provides that the Commercial Court must examine an appeal within 3 to 12 months.
Transition from District Court to Commercial Court
Separately, the Supreme Court issued Circular No. 1 of 2021 on 2 February 2021. The main points of the circular are:
The Government has issued the Draft GR, together with a variety of other draft implementing regulations on the JCL, for public consultation, but there is very little time to make revisions. The implementing legislation was originally scheduled to be effective within 3 months of JCL’s enactment: by 3 February 2021. In addition, government officials have stated that they wish to observe this deadline as far as possible, so it is expected that most of the draft regulations will be enacted this month. If the Draft GR as published in its current form is indeed enacted, it will apply to any cases in which the KPPU has not yet issued a decision.
With the introduction of the Draft GR, it is clear that the Government does not intend to wait any longer for the House of Representatives to enact the Competition Bill, which has been under consideration for several years now. As with the Draft GR, the Competition Bill introduces fines based on profits and turnover, in addition to a leniency program, and post-closing merger control regime. However, the adoption of a post-closing merger control regime would still require an amendment to the current ICL.
If the Draft GR as published in its current form is indeed enacted, it will be a game-changer for business undertakings in Indonesia. Fines for violation of the amended ICL can now be multiples of the maximum fine of IDR 25 million (approximately USD 1,750,000), which existed before enactment of the JCL. This also stresses the need for undertakings to take competition compliance seriously.
While the fines can further contribute to developing healthy competition in Indonesia, it is hoped that the Government, particularly the KPPU, will also provide further clarity on some of the prohibitive measures under the ICL, which to date leave much room for interpretation. Otherwise, the JCL and its implementing legislation will achieve the opposite of what was intended: a conducive business climate in Indonesia.
By partner Mr. Agus Ahadi Deradjat (firstname.lastname@example.org), foreign counsel Mr. Gustaaf Reerink (email@example.com), senior associate Mr. Bilal Anwari (firstname.lastname@example.org), and associate Ms. Nina Cornelia Santoso (email@example.com).
This ABNR News and its contents are intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. They do not constitute legal advice and should not be relied upon as such. Accordingly, ABNR accepts no liability of any kind in respect of any statement, opinion, view, error, or omission that may be contained in this legal update. In all circumstances, you are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could adversely affect your rights and obligations under Indonesian law.