29 March, 2021
The Covid-19 pandemic has caused a lot of uncertainty around the world. Not only from the health aspects but also from the economical aspects. Many businesses have been disrupted due to the uncertainty caused by the Covid-19. The tourism industry is one of the businesses which has been impacted negatively. It was reported that the tourism industry in Indonesia has suffered almost IDR 100 trillion losses due to the pandemic (approx. USD 7.1 billion).
Due to this, the government is finding ways to support the undertakings in Indonesia so that it will have a positive impact on Indonesia’s economic growth. One of the measures taken by the government is to give tax incentives to taxpayers. This measure was first taken in the early stage of the pandemic, in 2020, through the issuance of Regulation of Minister of Finance (MOF) Number 23/PMK.03/2020 on Tax Incentive for Taxpayers who are Affected by Corona Virus (PMK 23). After the issuance of this regulation, the MOF keeps amending and updating the regulation, and the last amendment was made by MOF Regulation Number 9/PMK.03/2021 TAHUN 2021 (PMK 9).
In the earlier regulation, PMK 23, the given incentives were (a) the government will bear the PPh 21 income tax of the employees who work in certain industries as regulated in the PMK, (b) the exemption on PPh 22 import tax for certain industries as regulated in the PMK, (c) reduction of the installment for PPh 25 for certain types of industries and (d) acceleration on the VAT restitution for certain types of industries. Later, the government added two more incentives throughout the amendments of the regulation, i.e., (i) the exemption on Final Income Tax for taxpayers with a certain revenue threshold and (ii) the exemption on Final Income Tax for taxpayers who are the recipient of Program to Accelerate Irrigation Water Use Improvement (P3-TGAI Taxpayers). The government also (a) extends the types of industries that can receive incentives and (b) increases the amount of reduction of the installment for PPh 25 from 30% to 50%.
This publication will elaborate on the types of tax incentives and the procedures for obtaining these incentives.
Incentive for PPh 21 Income Tax
The government will provide an incentive for the payment of PPh 21 (income tax of employees) for the employees who fulfill the following criteria:
- generate income from employers who:
- have business classification code as listed in the attachment of PMK 9; according to the attachment, 1,189 business classification codes are eligible for this incentive,
- have been appointed as companies that can obtain Ease of Import for Export Purposes facility (KITE Companies), or
- have obtained Bonded Area Operator permit, Bonded Area Entrepreneur permit, or permit as an entrepreneur who also acts as an operator in a bonded area (PDKB Permit).
- possess taxpayer identification number, and
- earn gross annual fixed and regular income of less than IDR 200 million; and the income is not coming from State or Regional Budget.
To obtain this incentive, the employers who fulfill the criteria must submit a notification to the tax office through its website. After examining the documentation, the tax office will issue a notification on whether the employers are eligible. If the employers are eligible, then the employers must:
- give the payment of PPh 21 to the eligible employees, and
- submit a realization report to the tax office by the next 20th of the end of the tax period; if the employers fail to submit the realization report, they may not enjoy the incentive for the relevant tax period.
For the employers who have branch offices, the notification obligation is only required to be submitted by the main office and can be applied to the branch offices.
Incentive for Final Income Tax for Taxpayers with Certain Taxpayers
The government will bear the final income tax of 0.5% for taxpayers who earn income with a gross turnover of less than IDR 4.8 billion in one tax year. As a result, the eligible taxpayer is not required to deposit the final income tax to the tax office, and the counterpart who has a transaction with this eligible taxpayer is also not required to withhold the final income tax from its payment.
The eligible taxpayers must submit a realization report to the tax office by the next 20th of the end of the tax period; if the taxpayers fail to submit the realization report, they may not enjoy the incentive for the relevant tax period. The government will provide the incentive following the information provided by the taxpayers in the realization report.
Incentive for Final Income Tax for P3-TGAI Taxpayers
Like the final income tax of certain eligible taxpayers, the government will also bear the final income tax for the P3-TGAI Taxpayers. The eligible taxpayers must submit a realization report to the tax office by the next 20th of the end of the tax period; if the employers fail to submit the realization report, they may not enjoy the incentive for the relevant tax period.
It is understood that one of the government’s objectives in providing this incentive is to support increased water supply as a labor-intensive project. This is important to support the agricultural sector in Indonesia.
Incentive for PPh 22 Import Tax
The government will exempt the payment of PPh 22 Import Tax for the taxpayers who fulfill the following criteria:
- have business classification code as listed in the attachment of PMK 9; according to the attachment, 730 business classification codes are eligible for this incentive,
- have been appointed as KITE Companies, or
- have obtained Bonded Area Operator permit, Bonded Area Entrepreneur permit, or PDKB Permit, at the time of the release of the goods from the bonded area to another place in the customs area.
To obtain this incentive, the eligible taxpayers must submit a notification to the tax office through its website. After examining the documentation, the tax office will issue a certificate of a free collection of PPh 22 Import Tax. Later, the taxpayer must submit a realization report to the tax office by the next 20th of the end of the tax period.
The incentive is one of the efforts of the government in boosting the import activities in Indonesia. The government hopes that by the implementation of this incentive, import activities will be increased so that it will affect Indonesia’s trade balance.
Incentive for Installment for PPh 25
For taxpayers who fulfill certain qualifications, the government will decrease the amount of installment for PPh 25 to 50% of the originally owed amount. To be eligible for this incentive, the taxpayers must fulfill the following criteria:
- have business classification code as listed in the attachment of PMK 9; according to the attachment, 1,018 business classification codes are eligible for this incentive,
- have been appointed as KITE Companies, or
- have obtained Bonded Area Operator permit, Bonded Area Entrepreneur permit, or PDKB Permit.
To obtain this incentive, the eligible taxpayers must submit a notification to the tax office through its website. After examining the documentation, the tax office will issue a notification on whether the taxpayers are eligible for this incentive. Later, the taxpayer must submit a realization report to the tax office by the next 20th of the end of the tax period.
Incentive for VAT
For taxpayers who fulfill the following criteria:
- have business classification code as listed in the attachment of PMK 9; according to the attachment, 725 business classification codes are eligible for this incentive,
- have been appointed as KITE Companies, or
- have obtained Bonded Area Operator permit, Bonded Area Entrepreneur permit, or PDKB Permit, they can obtain acceleration on the VAT restitution.
To obtain this acceleration, the eligible taxpayers must choose acceleration of VAT restitution on overpayment in the Periodic Tax Return and must submit a notification of VAT overpayment with a maximum amount of IDR 5 billion.
General Information
- Obligation. The given incentives will only apply to the taxpayers if they have submitted the 2019 Annual Tax Return to the tax office unless the taxpayers do not have any obligation to submit an annual tax return for the tax period of 2019.
- Incentives Period. The incentives in PMK 9 will be applicable for the tax period of January 2021 to June 2021.
General Note of the Authors
The granting of these incentives can be seen as the government’s efforts to protect the undertakings who are impacted by the Covid-19 pandemic. The continuous government’s supports are apparent from the issuance of the amendments since the first issuance of PMK 23. One of the most significant amendments is relating to the types of industries that can enjoy the incentives. The government keeps expanding the types of industries to provide more support to the undertakings.
According to one of the MOF officials, the realization of tax incentives in the 2021 National Economic Recovery program has reached IDR 7.15 trillion as of 17 March 2021. The most popular incentives applied by the taxpayers are the Incentive for Installment for PPh 25 and Incentive for PPh 22 Income Tax.
For further information, please contact:
Freddy Karyadi, Partner, ABNR
+62 818 103 949
fkaryadi@abnrlaw.com
Anastasia Irawati, Senior Associate, ABNR
airawati@abnrlaw.com
