||Nina Cornelia Santoso
Since last year, the Indonesian government has planned to
reform a number of tax policies, including an amendment to Law
No. 7 of 1983 on Income Tax, which was last changed by Law No.
36 of 2008 (Income Tax Law).
As unveiled in various news, a tax reformation team has been
formed to organise and supervise the process. The team has
received several proposals on the amendment to the Income Tax
Law from various entities including proposals to:
- Reduce the income tax rate for entities,
as proposed by the Fiscal Policy Agency (Badan Kebijakan
Fiskal) (BKF) of the Ministry of Finance (MOF); and
- Abolish the final income tax calculation
for several sectors, among others, construction, property,
gas station business, and micro/small/medium enterprises, as
proposed by the Directorate General of Tax (DGT). The DGT
suggested that the amendment to the calculation of the income
tax for these sectors should be based on bookkeeping by the
taxpayers, instead of stipulating a certain figure as a final
rate. The BKF briefly stated that under the Income Tax Law,
final income tax is imposed in such sectors because of the
difficulties in collecting the tax and because it is a form
of incentive for the taxpayers that is a better option than
keeping books that are too detailed.
In relation to the proposal to abolish the final income tax
calculation from the DGT, the BKF requested the DGT to
elaborate and emphasise what impact this would have on state
revenue, inflation, and the interests of entrepreneurs,
stressing that this must all be considered. In response to this
request, the DGT stated that the abolition will require each
taxpayer to conduct detailed bookkeeping and record all of its
income in any form, thus will ultimately increase the state
revenue. If the final income tax is still imposed, the
taxpayers must pay for income tax, whether or not they suffer a
loss or gain a profit.
In addition to the above proposals, the DGT also suggested
- Clearly stipulate income tax on e-commerce
business in the amendment to the Income Tax Law; and
- Revise transfer pricing provisions and
amend tax facilities.
Clear provisions on income tax on e-commerce business are
expected to encourage tax compliance by foreign e-commerce
entrepreneurs that sell to Indonesian customers. As for tax
facilities, more incentives, such as tax holiday or tax
allowance, may be further stipulated to attract investors.
Further, there is also a plan to revise the requirements on
dividends distribution derived from overseas investment through
a controlled foreign company (CFC) owned by Indonesian
taxpayers. The Indonesian government is concerned because there
are cases where Indonesian taxpayers place investments in other
countries, but the dividends derived are not distributed to
Indonesia. In other words, the dividends are deliberately
shifted to countries with low tax rates, resulting in tax
To ensure conformity with international taxation laws, the
BKF highlights compliance by Indonesian taxpayers by planning
to stipulate better procedures of tax payment. Through the
reformation, the Indonesian government is hoping to simplify
the tax obligations and stipulate more flexible tax rates in
the Income Tax Law. Details on the rates and calculations will
be further specified under each implementing regulation. This
will allow the Indonesian government to make quick adjustments
in the event of any changes or developments in the future.
Despite being a long-standing plan, to date, the amendment
to the Income Tax Law is still being discussed internally at
the MOF. The final revision to the Income Tax Law is scheduled
to be completed by this year.
On a separate occasion, the MOF enacted MOF Regulation No.
52/PMK.010/2017 concerning the utilisation of book value for
the transfer and acquisition of assets in the framework of a
merger, amalgamation, division, or acquisition of a business
(MOF Reg 52) in April 2017. This regulation revoked and
replaced MOF Regulation No. 43/PMK.03/2008 stipulating the
same. The previous regulation only allowed the utilisation of
book value for the transfer of assets due to a merger,
amalgamation, and division. However, MOF Reg 52 has now
included the acquisition of a business. In summary, MOF Reg 52
provides more detailed requirements to use the book value for
the transfer of assets, including the procedures on obtaining
approval from the DGT to use book value and the subsequent
obligations of taxpayers having obtained the approval.
A quick update on regulations related to the exchange of
information. Government Regulation in Lieu of Law
(Peraturan Pemerintah Pengganti Undang-undang, or
Perppu) No. 1 of 2017 concerning Access to Financial
Information for the Interest of Taxation was enacted on May 8
2017. In general, the Perppu stipulates that the DGT is
authorised to get access to financial information for the
interest of taxation from financial services institutions in
banking, capital market, insurance sectors, other financial
services institutions and/or other entities categorised as
financial institutions in accordance with exchange of financial
information standard pursuant to international agreements
related to tax.
The said institutions are required to submit:
- Report of financial information for each
financial account identified as financial account which must
be reported; and
- Report financial information for the
interest of taxation, administered by them in one calendar
year, to the DGT. The institutions must conduct financial
account identification procedures comprising of a series of
verification process in order for them to be able to generate
data for the report.
The report shall be submitted electronically and/or manually
(only for certain report by certain institution, to the extent
that an electronic system is not yet available) to the DGT.
Non-compliance with the reporting obligation is subject to
criminal sanction in the form of fine up to a maximum of IDR 1
In addition to receiving the above reports, the DGT is also
authorised to request information and/or evidence or an
explanation from financial services institutions, other
financial services institutions, and/or other entities.
Freddy Karyadi (firstname.lastname@example.org)
and Nina Cornelia Santoso (email@example.com),
Ali Budiardjo, Nugroho, Reksodiputro, Law
Tel: +62 21 250 5125