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Indonesia: Taxation supports ‘ease of doing business’

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Changes cover income tax, VAT, and general tax procedures and provisions

Ahdianto and Julius Wahyu of GNV Consulting discuss income tax, VAT and general tax provisions in relation to supporting ‘ease of doing business’.

The Indonesia government has enacted a regulation on taxation treatment to ‘support ease of doing business’ (GR 9/2021). GR 9/2021 came into effect on February 2 2021 and covers income tax, VAT, and general tax procedures and provisions.

Income tax 


Material provisions

 

Before GR 9/ 2021

After GR 9/2021

The reduction in income tax rates on bond interest income includes premiums, discounts, and benefits in connection with debt repayment guarantees.

 

20% or the tax treaty rate

The withholding rate for income tax Article 26 on bond interest income (including Sharia) received/earned by a foreign taxpayer other than a permanent establishment is reduced to 10% or according to the tax treaty rate.

 

 

The bond interest income received or earned by foreign taxpayers other than a permanent establishment includes:

  • Interest on bond with coupons calculated based on the gross amount of interest under the period of the bond’s ownership;

  • Discount on bond with coupons at the excess value over the selling price or the nominal value above the acquisition cost of the bond, not including the accrued interest;

  • Discount on a bond without interest at the excess value over to the selling price or the nominal value above the bond’s acquisition cost; and

  • The provisions of GR 9/2021 applies mutatis mutandis (with the relevant changes made) to the interest on bonds issued based on Sharia principles.

These tax rate reduction provisions will apply six months after the enactment of GR 9/2021.

Calculation of taxable income 

Newly inserted clause

Dividends or other income received or earned by individual taxpayers and domestic entities are exempted as income tax as referred to in Article 4 paragraph (3) letter (f) of the Income Tax Law.

Other income, referred to above, is income after tax from a permanent establishment abroad and active income from abroad that is not through a permanent establishment.

Domestic dividends received or earned by individual domestic taxpayers or by corporate taxpayers are not subject to income tax.

VAT

Newly inserted clause

Delivery of tangible taxable goods in the form of movable goods, other than delivery by the owner of the goods (the consignor) to the goods recipient (the consignee) on a consignment basis, when the following conditions are met:

  • Delivered directly to the buyer or to a third party for and on behalf of the buyer;

  • Delivered directly to the recipient of the goods for free gifts, self-usage, and delivery from the Head Office to a branch or vice versa and/or delivery between branches;

  • Delivered to the courier or freight forwarding company; or

  • Selling price is recognised as a receivable or income, or when a taxable entrepreneur issues a sales invoice, under the generally accepted accounting principles which are applied consistently; and

  • Delivery of tangible taxable goods in the form of immovable goods occurs at the time of transfer of the right to use or control the tangible taxable goods, legally or in real-time, to the buyer.

The provision states that "the obligation to issue a VAT Invoice does not apply to the self-usage of taxable goods and/or taxable services for productive purposes with its VAT non collected” has been removed.

Additional provisions regarding content of a VAT Invoice must contain at least:

  • Name, address, and passport number for an individual foreign tax subject; or

  • Name and address for corporate foreign tax subjects or non-tax subjects.

The Resident Identification Number (KTP) is treated as equivalent to the Taxpayer Identification Number (NPWP) in making a VAT invoice and crediting the input VAT.

General provisions

 No.

 Material provisions

 Before GR 9/2021

 After GR 9/2021

 1.

 Administrative penalty for disclosing an incorrect tax return. 50% Interest calculation according to the interest rate from the Minister of Finance, maximum 24 months.

50%

 Interest calculation according to the interest rate from the Minister of Finance, maximum 24 months.

 2.

 Administrative penalty for disclosing incorrectness of acts.

150%

 100%

 3.

Administrative penalty for terminating a tax investigation.

Four times the amount of unpaid or underpaid tax, or refunded tax that was not valid.

Three times the amount of unpaid or underpaid tax, or refunded tax that was not valid.

 4.

Bookkeeping for individual taxpayers who carry out business activities.

Not required.

Mandatory.

 5.

The amount of unpaid or underpaid tax plus administrative sanctions at 48% interest. 2% interest per month for a maximum of 24 months.

2% interest per month for a maximum of 24 months.

 Interest calculation according to interest rate from the Minister of Finance, maximum of 24 months.

 6.

Decisions or decrees in the framework of implementing statutory provisions in the taxation sector.

Issued manually in a printed document.

Maybe issued electronically.

 

The provision states that “In the case that disclosure of inaccuracy in filling in a tax return is done for a periodic VAT return, the input VAT on the acquisition of taxable goods or services which was not reported in the periodic VAT return which was found during a tax audit event, cannot be taken into account as a tax credit” has been removed.

The scope of tax audit due to negligence in filing an incorrect tax return is eliminated. Meanwhile, a taxpayer that has not yet made any delivery of taxable goods and/or taxable services and/or export of taxable goods and/or taxable services but has already received a preliminary VAT refund or credited input VAT referring to Article 9 (6e) of the VAT Law is added as to the scope of tax audits.

Individual taxpayers who carry out business activities or independent employment and corporate taxpayers in Indonesia must maintain bookkeeping. Taxpayers with specific criteria are excluded from the obligation to maintain bookkeeping but are still obliged to record the transactions.

Interest compensation is given based on the interest rate per month determined by the Minister of Finance based on the reference interest rate divided by 12 and for a maximum of 24 months, and a part of a month is calculated as one full month.

Transitional provisions

Withholding tax on bond interest income received or earned by foreign taxpayers other than a permanent establishment up to six months since GR 9/2021 comes into force shall follow the provisions stipulated in Regulation No. 16/2009 regarding income tax on income in the form of bond interest as amended by Regulation No. 55/2019.

Taxable entrepreneurs, other than retailer taxable entrepreneurs, that issue a VAT invoice without including the identity of the buyer of the taxable goods or recipient of taxable services as referred to in Article 13 paragraph (5) letter b of the Law on Value Added Tax up to 30 days after GR 9/2021 comes into force will not be subject to administrative sanctions under Article 14 paragraph (4) of the General Procedures and Provisions for Taxation (KUP Law).

In the following circumstances, the calculation is done using the interest rate under the Minister of Finance Decree which regulates the calculation of interest rates as the basis for calculating administrative sanctions in the form of interest and the provision of interest compensation that is effective from November 2020.

  • SKP (tax assessment notices) or STP (tax collection notices) issued since November 2 2020, containing administrative sanctions in the form of interest, for which the calculation of administrative sanctions started before November 2 2020;

  • Disclosure of the incorrect filing of the tax return declared since November 2 2020, for which the calculation of administrative sanctions started before this date; and

  • Interest compensation awarded based on a decree, decision, or verdict issued since November 2 2020, for which the calculation of the interest compensation started before this date.

 

Ahdianto

Partner, GNV Consulting

E: ahdianto@gnv.id


 

Julius Wahyu Daryono

Director, GNV Consulting

E: julius.daryono@gnv.id

 

 

 

 

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