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Super tax deduction welcomed
Analysts and manufacturing industry players have lauded the long-waited fiscal incentives issued by President Joko “Jokowi” Widodo
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Analysts and manufacturing industry players have lauded the long-waited fiscal incentives issued by President Joko “Jokowi” Widodo.
They agreed that the so-called super tax deduction would significantly help businesses revive their prospects and improve the skills of the country’s labor force. However, businesses also need the government’s help to provide affordable loans and market access, as well as technology to enable them to compete.
“They should consider coming up with policies to address these other issues, because focusing only on tax deduction could put a heavy burden on the country’s tax revenues in the long run. If they put their focus only on this, the effects of reduced tax revenue could weigh more heavily than the benefits,” Center of Reform on Economics (CORE) Indonesia executive director Mohammad Faisal told The Jakarta Post on Wednesday
Additionally, he reminded the relevant ministries to immediately issue the necessary derivative regulations so that businesses would benefit from the incentives as soon as possible and not miss out on the exciting opportunities from the regulation.
The tax incentives, which policymakers refer to as super tax deductions, were issued on June 25 through Government Regulation (PP) No. 45/2019 on the calculation of taxable income and income tax payments in the current year.
Under Article 29A of the regulation, investors who open a new business or expand their existing businesses in labor-intensive sectors are allowed to offset 60 percent of the capital they invest against their taxable net income.
Meanwhile, under Article 29B, companies that provide training programs, internships and/or educational activities to develop human resources based on a certain competency can offset up to 200 percent of the funds they spend on the activities against their taxable gross income.
Meanwhile, under Article 29C of the new regulation, companies which conduct research and development (R&D) activities in Indonesia are allowed to offset up to 300 percent of the cost of their R&D activities against their taxable gross income. Such deductions vould significantly reduce their tax payments.
“Indonesia has long been in need of incentives that could leverage our labor-intensive industries,” the Indonesian Employers Association’s (Apindo) chairman for the manufacturing sector, Johnny Darmawan, told the Post on Wednesday.
Johnny said this was especially so because of the constantly rising labor wages in Indonesia, which was good news for workers but not for investors who feel that workforce productivity has not improved at the same pace.
Johnny said he hoped that such rewards for upskilling efforts would compensate investors and shift their focus back toward labor-intensive industries, pointing out that Indonesia’s skilled labor had developed the least among other Southeast Asian countries as over 60 percent of Indonesia’s 128 million workforce only had junior high school degrees.
“With this incentive, we can safeguard labor opportunities for our workforce as well as encourage more investment to replace imported technologies so that our workers will be able to replicate the same technology,” he said. “We still have many labor-intensive sectors as our manufacturing mainstays, such as textiles and footwear.”
Indonesian Chamber of Commerce and Industry (Kadin) vice chairwoman Shinta Kamdani welcomed the incentives, saying the development of high value-added industries would require highly skilled workers who are costly to recruit.
Businesspeople, she said, were also satisfied by the tax incentives the regulation offered.
“Businesses have always needed skilled workers and experts, with the former expected to be recruited via vocational schools,” Shinta told the Post separately. “However, educating such workers is costly, and there are problems of [skill] mismatches because what is taught [in vocational schools] is different from what businesses need.”
She further acknowledged Indonesia’s efforts to develop its intermediary and upstream manufacturing industries, such as automotive and electronics, believing that the super tax deduction would boost the number of skilled workers as a vital element of development.
However, the super tax deduction would have little effect on the textile industry according to an industry representative.
Redma Gita Wirawasta, the secretary-general of the Indonesian Association of Synthetic Fiber Producers, said that investment in the textile and textile products sector would flourish if the government limited imports and provided domestic markets.
“A tax deduction of 300 percent is useless when you cannot sell,” he told Bisnis.com, adding that the government had offered various tax incentives in the past but not many textile producers had availed themselves of these tax facilities.
