Expand Tax Incentives, Indonesian Combat COVID-19

The Covid-19 pandemic has hit Indonesia for nearly thirteen months since the government confirmed the first infection in Indonesia on March 2, 2020. Not only causing a public health crisis, but the Covid-19 pandemic has also significantly disrupted national economic activity. The Indonesian government is taking action to expand tax incentives to maintain economic stability

The government’s decision to implement Large-Scale Social Restrictions (PSBB) since April 2020 has had a broad impact on the process of production, distribution, and other operational activities, which ultimately leads to economic performance. The Indonesian economy in 2020 will grow negatively. Unemployment and poverty rates are increasing. Various regulations have been released by the government to put the national economy back into a positive trajectory after the pandemic.

Various economic policies have been established to stand the negative impact of Covid-19.

In reaction to the economic effects of COVID-19, the Indonesian government repealed Ministry of Health Regulation No.44/PMK.03/2020 (PMK-44) and replaced it with Ministry of Finance Regulation No.86/PMK.03/2020 (PMK-86), which takes effect on July 16, 2020.

The list of taxpayers eligible for Article 21 of the Employee Income Tax (EIT), Article 22 of the Income Tax on Imports, Article 25 of the Income Tax Incentive, and Value Added Tax (VAT) has been expanded in PMK-86 (VAT). The list of qualifying taxpayers has been extended to include taxpayers who meet the following criteria:

  •  Have a Business Classification (Business Classification Field / KLU) which is included in the Annex PMK-86;
  • Declared as a company granted with Import Facility for Export Purposes (Kemudahan Impor Tujuan Ekspor/KITE)
  • Have a license as an operator and/or business in the Bonded Zone (BZ) area.

Processing and refining were included as eligible industries in the previous PMK-44, and the number of eligible industries has been extended in PMK-86. The particular KLU mentioned in each Attachment to PMK-86 should be used to determine whether or not a taxpayer is eligible. The full list can be found in PMK-86’s addition.

Expand tax list of industries at PMK-86.

Attachment A (consisting of 1,189 Klus) for Article 21 EIT incentive, which includes:

  • Agriculture, Forestry, and Fishery
  • Mining and Excavation
  • Processing/manufacturing
  • Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
  • Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
  • Construction
  • Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
  • Transportation and Warehouse
  • Furnishing of Accommodation and Furnishing of Meal-Drink
  • Information and Communication
  • Financial and Insurance Service
  • Real Estate
  • Professional, Scientific, and Technical Service
  • Rental, Manpower, Travel Agency and Other Business Supporting Service
  • Education Service
  • Health and Social Activity Service
  • Culture, Entertainment, and Recreation
  • Other Service Activities

Attachment H (consisting of 721 Klus) for Article 22 Income Tax on imports and VAT incentives, which includes:

  • Agriculture, Forestry, and Fishery
  • Mining and Excavation
  • Processing/manufacturing
  • Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
  • Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
  • Construction
  • Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
  • Transportation and Warehouse
  • Real Estate

Attachment M (consisting of 1,013 Klus) for Article 25 Income Tax incentive which includes: Agriculture, Forestry, and Fishery:

  • Mining and Excavation
  • Processing/manufacturing
  • Procurement of Electricity, Gas, Steam/Hot Water, and Cold Air
  • Procurement of Water, Garbage Treatment and Recycle, Waste and Garbage Disposal and Cleaning
  • Construction
  • Wholesale and Retail Trade; Repair and Maintenance of Cars and Motorcycles
  • Transportation and Warehouse
  • Furnishing of Accommodation and Furnishing of Meal-Drink
  • Information and Communication
  • Financial and Insurance Service
  • Real Estate
  • Professional, Scientific, and Technical Service
  • Rental, Manpower, Travel Agency and Other Business Supporting Service
  • Education Service
  • Health and Social Activity Service
  • Culture, Entertainment, and Recreation
  • Other Service Activities

Expand Tax incentives in PMK-86 are still the same as PMK-44 which are the following:

  1. For eligible taxpayers, the Article 21 EIT for employees with annual income not exceeding IDR 200 million will be borne by the government.
  2. Exemption of article 22 Income Tax on imports by eligible taxpayers.
  3. 30% reduction on article 25 monthly Income Tax installment of eligible taxpayers.
  4. A preliminary VAT refund will be available for eligible taxpayers requesting a refund for a maximum IDR 5 billion.

This incentive is available for the period April – December 2020 but generally applies from the time of notification or application of incentives by taxpayers.

On April 30, 2020, the Directorate General of Taxation (Directorate General of Taxation) released Circular Letter No.SE-29/PJ/2020 (SE-29) as a reference to the introduction of PMK-86. According to SE-29, income tax incentives under Article 25 that are submitted no later than May 15, 2020, and EIT incentives under Article 21 that are submitted no later than May 20, 2020, will also be used beginning in April 2020. The notification, application process and realization report requirements remain the same. Except for Article 21 EIT which previously must be reported every quarter now become a monthly basis.

Final Expand Tax Incentive for SMEs

In addition to expanding the number of eligible taxpayers, PMK-86 includes new incentives for Small and Medium Enterprises (SMEs) that are subject to a 0.5 percent final income tax rate. The final tax regime of 0.5 percent extends to taxpayers with an annual gross turnover of no more than Rp 4.8 billion, according to Government Regulation No.23 of 2018 (GR-23)

The government will bear the final tax under this regime from April to December 2020, according to PMK-86. The final tax regime of 0.5% applies to taxpayers with an annual gross turnover of no more than Rp 4.8 billion.

On the 20th of the following month, qualified taxpayers shall apply a monthly realization report on the final tax borne by the government. PMK-86 specifies more specific operating processes for all qualifying taxpayers and tax holders.

Expand tax transitional

The government has set some transitional provisions regarding the changes from PMK-44 to PMK-86 which are the following:

Regarding the utilization of Article 21 EIT and Article 25 Income Tax Incentives based on PMK-44 do not need to return the same notification based on PMK-86.

Taxpayers who have submitted or granted SKB Article 22 Income Tax on imports based on PMK-44 do not need to reapply for SKB based on PMK-86. Those who have been get tax incentives based on PMK-44 can continue to enjoy the incentives.

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