31 May 2021
The Covid-19 is a public enemy of the world. Not only it caused many fatalities, but also economic losses to countries around the world. Both developing and developed countries suffered losses of their gross domestic product due to the pandemic. Only a few countries manage to keep the growth despite the pandemic situation.
According to the data published by Indonesia’s Central Bureau of Statistics in April 2021, Indonesia suffered a 2.1% loss of its gross domestic product for the year 2020. To minimize the loss and boost the economic growth, the government has provided many incentives to the undertakings throughout 2020, among others: (i) reduction of the corporate income tax rate to be 22% for the financial year of 2020-2021 and (ii) tax facilities/incentives for certain industries. Like two sides of a coin, the government must pay prices due to the incentives given. The given incentives caused the government to suffer losses on its income from taxes. The incentives have some portion attributed to the losses in addition to other factors such as the decrease of the trading volume. Notwithstanding the loss’s potential, incentives must be given to prevent the government from having greater damage from economic disruption. In this regard, the government has also started a tax reform in Indonesia to boost the tax income from other sectors.
Throughout the year 2020, the Indonesian government has implemented the following tax reform in Indonesia:
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Taxation on Electronic System Trading
By the issuance of Law Number 2 of 2020 and its implementing regulations, the government has imposed 10% Value Added Tax (VAT) in the Utilization of Intangible Taxable Goods and/or Taxable Services from Outside of Customs Area in the Customs Area through the Electronic System Trading.
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Issuance of New Stamp Duty Law
By the issuance of Law Number 10 of 2020 on Stamp Duty, which had been effective as of 1 January 2021, the government has increased the tariff of the Stamp Duty from IDR 3,000 or IDR 6,000 to a single flat rate of IDR 10,000. In addition to this, the government also extends the scope of stamp duty requirement to include electronic documents, by the introduction of electronic stamp duty.
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Omnibus Law and its Implementing Regulations
The Omnibus Law and its implementing regulations have amended some regulations on among others income tax law (e.g., redefinition of individual tax subjects, non-taxable dividends if reinvested in Indonesia, adjustment on interest tax tariff), VAT law and taxation general provisions law with a spirit of boosting investment and creating more job opportunities.
The tax reform which has been started in 2020 will continue as it is expected to be one of the options in increasing the government’s income to pay for the State Budget. The spirit of the tax reform will be in the form of among others (i) expansion of tax basis, (ii) increasing the voluntary compliance of the taxpayers, (iii) fair and equal treatment of tax principles and (iv) strengthening of tax administration.
In light of the tax reform, the Ministry of Finance has issued a Macroeconomic Framework and the Main Points of Fiscal Policy for the 2022 Financial Year (Framework) on its website. The title of the Framework is Economic Recovery and Structural Reform. According to the Framework, the notable challenges for taxation policies in 2022 are (i) the needs for support for undertakings for economic recovery and structural reforms, (ii) changes in the economic structures and the developments in electronic transactions, (iii) the low rate of tax basis, and (iv) the low rate of tax compliance. Thus, the 2022 fiscal policy direction will be expansive in optimizing the government’s income from (i) expansion of tax basis from among others e-commerce sector, plastic excise, and VAT, (ii) strengthening the tax system in line with the economic structure, (iii) providing a fair and just fiscal incentive, (iv) optimizing asset management to be more productive by implementing highest and best use principle, (v) increasing the innovation and quality of services.
The Framework stipulates that the tax technical policy that will be implemented in 2022 are:
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Optimizing the tax basis by among others increasing the voluntary compliance of the taxpayers through providing educational activities and increasing the public services to ease the taxpayers in complying with their tax obligations,
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Increasing the extensification and area-based supervision so that it can reach wider taxpayers,
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Expansion of tax payment channels to ease the taxpayers in accessing, applying and paying their taxes,
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Optimizing data collection and utilization of internal and external data, including automatic exchange of information and banking data,
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Fair law enforcement,
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Continuing the process of tax reform that includes organizational pillars, human resources, business progress, data and IT, as well as regulations, one of which is realized through the development of a core tax system.
According to the Framework and some publications, the Ministry of Finance is in the process of considering and drafting some regulations that relate to among others:
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Imposition of tax in the fintech industry, among others imposition of income tax on the interest received by lenders in a P2P business; this is due to the growth and development of P2P business in Indonesia, which then caught the government’s attention on the potential tax income from the receipt of such income,
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Increase of tariff for individual income tax; it is rumored that the government is planning to increase the tariff of individual income tax to be 35% for an individual whose annual income is greater than IDR 5 billion,
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Replacement of penal tax sanction to administrative sanction; this is intended to generate more tax income from the payment of the administrative sanction,
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Application of new Tax Amnesty; this will be a continuation of the tax amnesty applied by the government in 2016 and 2017, which was aimed to let the taxpayers voluntarily declare the taxable object which had not been reported yet in their annual tax return so that the government can generate additional tax incomes.
From the Framework, it is clear that one of the main objectives of the government is to expand the tax basis to (i) balance the incentives given by the government and (ii) fund the State Budget. Therefore, it is expected that new regulations will be issued from 2021 to 2022 to back up this objective.
For further information, please contact:
Freddy Karyadi, Partner, ABNR
+62 818 103 949
fkaryadi@abnrlaw.com
Anastasia Irawati, Senior Associate, ABNR
airawati@abnrlaw.com
