Risk Based Business Licensing

Introduction

Risk-based business licensing, known as Perizinan Berusaha Berbasis Risiko, is a central reform in Indonesia's regulatory landscape, aimed at simplifying the business licensing process and enhancing the investment climate. This approach was introduced under Peraturan Pemerintah Republik Indonesia Nomor 5 Tahun 2021 Tentang Penyelenggaraan Perizinan Berusaha Berbasis Risiko, which aligns with the broader goals of the Cipta Kerja (Omnibus Law) or Undang-Undang Nomor 11 Tahun 2020. The risk-based approach tailors the licensing requirements to the inherent risks associated with different business activities, making it more efficient, transparent, and conducive to business growth.

Overview of Risk-Based Business Licensing

The risk-based business licensing system classifies business activities into different risk levels—low, medium, or high—depending on their potential impact on public health, safety, environmental protection, and resource management. By focusing on the specific risks of each business, the government aims to streamline licensing procedures, reduce unnecessary bureaucracy, and enhance regulatory oversight where needed.

The primary goal of the risk-based approach is to make business licensing more proportionate to the risks involved. For lower-risk businesses, the licensing process is simplified, while higher-risk businesses face stricter regulatory requirements and oversight.

Key Principles of Risk-Based Licensing

1. Risk Categorization: Businesses are categorized based on their risk level, which determines the type and complexity of the license required.

   • Low-risk businesses need a simpler, less burdensome process.
   • Medium-risk businesses are divided into medium-low and medium-high risk levels, each with appropriate licensing and oversight.
   • High-risk businesses face the most stringent licensing requirements.

2. Proportional Licensing: The nature and extent of licensing requirements are proportional to the level of risk a business poses. This helps to eliminate unnecessary administrative burdens for low-risk businesses, allowing for faster processing and reduced costs.

3. Efficient Regulation: The system aims to balance business facilitation and public protection, ensuring that businesses can operate efficiently while adhering to important safety and environmental standards.

4. Risk Assessment: Risk levels are determined through comprehensive risk assessments carried out by regulatory authorities. These assessments take into account the nature of the business, its impact on health, safety, the environment, and other relevant factors (Article 7, PP No. 5/2021).

Risk Levels and Their Licensing Requirements

The risk-based approach divides business activities into three primary risk categories, each requiring a different level of regulatory approval:

1. Low-Risk Businesses

• License Type: Nomor Induk Berusaha (NIB)
• Description: Businesses classified as low-risk are required to obtain an NIB (Business Identification Number), which acts as the only license needed for these businesses to operate.
• Key Characteristics:
  • Minimal regulatory oversight.
  • The NIB serves as proof of registration and provides the legal basis for businesses to start their activities (Article 12, PP No. 5/2021).

2. Medium-Risk Businesses

• License Type: NIB + Sertifikat Standar (Standard Certificate)
• Description: Medium-risk businesses are divided into two sub-categories:
  • Medium-Low Risk: These businesses need an NIB and a self-declared Standard Certificate, certifying compliance with operational standards (Article 13).
  • Medium-High Risk: These businesses require an NIB and a verified Standard Certificate, where authorities verify compliance before the certificate is issued (Article 14).
• Key Characteristics:
  • Moderate regulatory oversight.
  • Requires adherence to operational and product standards.

3. High-Risk Businesses

• License Type: NIB + Izin (License)
• Description: High-risk businesses must obtain both an NIB and formal Izin, which is issued by the central or regional government. This process involves a thorough review of the business’s compliance with safety, health, and environmental standards (Article 15).
• Key Characteristics:
  • Strict regulatory oversight.
  • Requires pre-approval of operational plans and standards.
  • Businesses in this category face the most stringent controls to ensure public safety and environmental protection.

Risk Assessment Process

The risk assessment is the foundation of the risk-based licensing approach. This process is carried out by the Pemerintah Pusat (Central Government) or relevant authorities and involves several key steps:

1. Identification of Business Activities: The first step is identifying the specific activities carried out by the business (Article 8).
2. Hazard Assessment: Authorities assess the potential hazards associated with the business activities, including their impact on health, safety, the environment, and resources (Article 9).
3. Probability of Occurrence: The likelihood of these hazards occurring is evaluated, ranging from almost impossible to almost certain (Article 9).
4. Risk Level Determination: Based on the assessment of hazards and their likelihood, the overall risk level of the business is determined (Article 10).
5. Risk Mitigation Requirements: The regulatory requirements are adjusted based on the risk level. Low-risk businesses face minimal requirements, while high-risk businesses must comply with comprehensive safety and environmental regulations (Article 11).

Implementation of Risk-Based Licensing

The implementation of risk-based licensing is supported by the Online Single Submission (OSS) system, which plays a crucial role in simplifying the entire process. The OSS system allows businesses to apply for and track their licenses electronically, ensuring faster processing and better coordination between various government agencies.

The OSS system supports the issuance of:

• NIB: Automatically issued for low-risk businesses.
• Sertifikat Standar: Issued for medium-risk businesses based on self-declaration or verification.
• Izin: Issued for high-risk businesses following thorough regulatory approval.

Advantages of Risk-Based Licensing

1. Simplification of Licensing: By categorizing businesses based on their risk levels, the system eliminates unnecessary steps for low-risk businesses, reducing the overall complexity of the licensing process.

2. Efficiency and Speed: The OSS system and risk-based framework work together to reduce the time it takes to obtain a business license, particularly for low- and medium-risk businesses.

3. Encouraging Entrepreneurship: The simplified process for low-risk businesses encourages entrepreneurs, particularly in micro, small, and medium enterprises (MSMEs), to formalize their operations with minimal regulatory burden.

4. Enhanced Oversight for High-Risk Sectors: For industries with higher risks, such as those related to health, safety, and environmental protection, the government ensures stringent oversight and comprehensive licensing procedures.

5. Transparency and Accountability: By implementing risk-based licensing, the process becomes more transparent and accountable, as businesses and regulators can clearly understand the requirements based on the risk level.

Challenges and Criticisms

While the system introduces several improvements, there are certain challenges:

• Technological Access: In rural areas, businesses may struggle with accessing the OSS system due to limited internet connectivity or lack of technological literacy.
• Coordination Across Agencies: Effective coordination between national and regional authorities is critical to the system's success, and discrepancies in interpretation or implementation can delay the process.
• Enforcement and Compliance: Ensuring that all businesses comply with the licensing requirements, particularly medium and high-risk businesses, requires robust enforcement mechanisms.

Conclusion

Risk-based business licensing represents a transformative approach to simplifying and modernizing the business environment in Indonesia. By tailoring the licensing process to the specific risks associated with business activities, the system helps to encourage entrepreneurship, promote investment, and ensure public safety. Through the Online Single Submission (OSS) system, businesses can navigate the licensing process with greater ease and transparency, aligning with the government’s broader goals of boosting economic growth and improving the regulatory framework.

Tags: #riskbasedlicensing #businesslicensing #OSS #CiptaKerja #IndonesianLaw

Disclaimer: This content is AI-generated with minimal human intervention.