Indonesia introduces tax changes to promote job creation
Charles Oetomo and Welly Armantha Napitupulu of GNV Consulting highlight the key tax-related developments from late 2020 in Indonesia.
Tax cluster in omnibus law
The omnibus law consists of several regulations to promote job creation, including a taxation cluster for changes in certain articles of the existing tax laws. These are found in Article 111 regarding the income tax law (UU PPh), Article 112 regarding the value added tax law (UU PPN), and Article 113 regarding general tax procedures and provisions (UU KUP).
The major changes in this law are as follows:
Indonesian citizens who are working abroad for more than 183 days within a period of 12 months will be excluded as tax resident;
Dividends received is exempted from tax on dividend, if the dividend is reinvested in Indonesia and meets certain requirements; and
Distribution of net income by a cooperative is no longer included as a tax object.
Value added tax (VAT):
Consignment is no longer included in the definition of ‘delivery of taxable goods’, nor is the transfer of taxable goods in ‘exchange for share capital’;
Coal mining products no longer fall under the definition of a ‘non-tax object’; and
Input VAT can be credited even though VAT-able entrepreneur (PKP) registration has not been completed, with a maximum of 80% of the relevant output VAT.
General tax procedures and provisions (KUP):
The calculation method for tax penalty is changed from fixed monthly interest of 2% to the use of a benchmark interest rate (plus a certain percentage, depending on the type of error) divided by 12 months, with a maximum of 24 months; and
The issuance of an underpaid tax assessment notice (SKPKB) can only be done through a tax audit.
Deduction in gross income for R&D activities
The Minister of Finance (MoF) has issued Regulation No. 153/PMK.010/2020 regarding the granting of a deduction in gross income for certain research and development (R&D) activities in Indonesia (PMK-153).
The Indonesian government has provided incentives to reduce gross income for 11 specific industries, such as: food; pharmaceutical, cosmetics and medical devices; textile, leather, and shoes; and means of transportation.
Taxpayers that conduct certain R&D activities in Indonesia can be granted a deduction in gross income up to 300% from the total cost expended for certain R&D activities in Indonesia that are charged within a certain period. The details reduction, types of R&D activities, and other administrative requirements are provided in this PMK-153.
This PMK-153 is applied from October 9 2020.
Regulations on tax facilities
The MoF has issued Regulation No. 143/PMK.03/2020 regarding the tax facilities for goods and services required in the handling of the COVID-19 pandemic and on the extension of income tax facilities based on Government Regulation (GR) No. 29 of 2020 regarding income tax facilities for handling COVID-19 (PMK-143).
The major change in this PMK-143 is the addition of tax subjects (parties) that can enjoy these facilities, are: pharmaceutical industry of vaccine/drug production and taxpayers, for handling COVID-19.
The tax facilities provided in this PMK-143 are VAT, income tax: Article 22; Article 21; Article 23 incentives.
PMK-143 is applied from October 1 2020.
Import duty on the production of certain goods and services
The MoF has issued Regulation No. 134/PMK.010/2020 regarding import duty borne by the government (Bea Masuk Ditanggung Pemerintah - BMDTP) on the import of goods and materials to produce goods and/or services by certain industrial sectors affected by the COVID-19 pandemic (PMK-134).
There are 33 industrial sectors that are eligible for this facility, with a total budget of is IDR 583.29 billion ($41.3 million). The top five largest budgets are given to: personal protective equipment; cocoa processing; corn refining and/or corn-based food processing; dairy processing; and bicycle manufacturing sectors.
The detailed types of goods and materials that are eligible for this incentive are listed in in this PMK-134.
To enjoy this facility, companies must get approval from the Director General of Customs and Excise (DGCE), and other administrative requirements should be fulfilled.
Changes in taxing the import of medical goods
On October 8 2020, the MoF issued Regulation No. 149/PMK.04/2020 (PMK-149) as the second amendment of MoF Regulation No. 34/PMK.04/2020 regarding the granting of customs and/or excise and tax facilities on the import of goods for the purpose of handling the COVID-19 pandemic (PMK-34).
The major change in this PMK-149 is the amendment of types of goods as listed in the appendix of PMK-149, with the summary as follows:
a. Added items: Finished medicines (Tocilizumab, Intravenous Immunoglobulin (IVIG), Mesenchymal Stem Cell (MSCs), Favipiravir, Remdesivir, Insulin), N95 respirator masks
b. Deleted items: Hand sanitiser, disinfectant products, rapid test products, medical masks, protective clothes
This PMK-149 is applied from October 8 2020.
T: +62 21 2988 0681
Welly Armantha Napitupulu
T: +62 21 2988 0681