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Global minimum tax means RI needs other incentives to lure investors

The global minimum tax aims to prevent a race to the bottom where countries outdo one another by lowering taxes for multinational companies, but it means Indonesia must rely on other incentives to lure investors. However, the effectiveness of the arrangement is in doubt after United States President Donald Trump declared it “has no force or effect” in the US.

Aditya Hadi (The Jakarta Post)
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Wed, January 22, 2025

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Global minimum tax means RI needs other incentives to lure investors A tax officer provides consultancy services on Sept. 1, 2020, at the regional chapter (KKP) of the Taxation Directorate General (DJP) in the Cicadas area of Bandung. (Courtesy of/Bandung tax office)

T

he 15 percent global minimum tax (GMT) starting this year as part of an international initiative to curb tax avoidance by multinational corporations means the government needs to rely on other incentives to lure investors.

Yet, analysts say, it will not significantly hurt inflows of foreign direct investment (FDI) to Indonesia, given the limited number of companies that may be affected by the regulation and the option to offer other incentives to attract investors.

They urge the government to address investors’ primary concerns regarding legal certainty, regulatory clarity and demand.

Meanwhile, the effectiveness of the arrangement is in doubt after United States President Donald Trump declared it “has no force or effect” in the US.

Spearheaded by the Organisation for Economic Cooperation and Development (OECD), the GMT demands a minimum effective corporate tax rate of 15 percent for companies with gross revenue exceeding 750 million euros (US$784 million).

The framework seeks to ensure global corporations pay a baseline tax irrespective of their operational locations. If a country undercuts this minimum tax, other countries where the corporation is based or operates may impose top-up taxes to collect the difference.

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This aims to prevent profit-shifting strategies where businesses move earnings to low-tax jurisdictions to reduce their tax burden.

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