Investors are awaiting a series of fiscal incentives from the Indonesian government, including a new tax holiday. Meanwhile, investors also urge the government to improve the investment and business climate by simplifying the process and procedures to obtain permits for investment projects. This also includes improving the coordination between central and regional authorities, for example through the integration of the permitting process at both levels.
Last week, Indonesian government officials said a new tax holiday was being designed and is set to be signed by Indonesian Finance Minister Sri Mulyani Indrawati soon, implying that implementation would follow not long after.
Hariyadi Sukamdani, Chairman of the Indonesian Employers Association (Apindo), stated - on behalf of investors - that the new tax holiday of the Indonesian government needs to be simplified in order to avoid any uncertainty or confusion among (potential) investors.
Back in 2016 the Indonesian government had imposed several tax incentives, including a tax holiday that ranged between 10 to 100 percent for a period ranging between five and 15 years. This tax holiday would be revised four times because potential investors complained that it was confusing if they would be able to enjoy the tax holiday, and if yes, what the tax rate would be as well as the duration. Moreover, after filing for the tax holiday it would take many months before there would come a decision.
Indonesian Tax Chief Robert Pakpahan said the new tax holiday, which will be offered to investors soon, is much simpler as well as more attractive for investors and therefore should have a good impact on investment growth in the country. The differences between the new and older versions of the tax holiday are basically threefold, he said: (1) the older versions of the tax holiday scheme were only available to new investors, while the new tax holiday scheme can also be enjoyed by existing companies that want to engage in business expansion, (2) only one rate is applied in the new tax holiday scheme (namely 100 percent), contrary to the range of 10-100 percent in the older tax holiday versions, and (3) in the new tax holiday scheme there are more layers in terms of the length of the tax holiday (and the exact duration depends on the value of the investment), while in the older scheme the available duration were 5, 10, or 15 years (see table below).
Investment & Tax Holiday Period:
|IDR 500 billion - IDR 1 trillion||5 years|
|IDR 1 trillion - IDR 5 trillion||7 years|
|IDR 5 trillion - IDR 15 trillion||10 years|
|IDR 15 trillion - IDR 30 trillion||15 years|
|> IDR 30 trillion||20 years|
Meanwhile, Yustinus Prastowo, Executive Director of the Center for Indonesian Taxation Analysis, is optimistic that the new package will appeal to investors. However, he advises the government to look at the return of investment when deciding to grant a tax holiday, thus those investments that have a low return of investment but have a clear positive impact on society (for example by generating plenty of new employment opportunities for the local population) should be granted an attractive tax holiday, while those investment projects that have a high return of investment (but limited social benefits) should not be offered an attractive tax holiday.
Lastly, Prastowo reminded that - based on international research - tax issues are not the most crucial factor for investors when deciding to engage in direct investment, hence offering an attractive tax holiday will not solve everything.
Old vs New Tax Holiday Scheme of the Indonesian Government:
|Approval from Finance Ministry requires 125 working days||Approval from Finance Ministry requires five working days|
|Only available to new investors||Available to new and existing investors|
|Minimum investment IDR 1 trillion||Minimum investment IDR 500 billion|
|Corporate income tax is cut by 10%-100%||Corporate income tax is cut by 100%|
|Length is 5, 10 or 15 years||Length ranges between 5-20 years|