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‘Indonesia means business' in tax overhaul
New bill to lower corporate tax, require tech firms to be subject to VAT.
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Finance Minister Sri Mulyani Indrawati (center), accompanied by the ministry’s taxation director general, Robert Pakpahan (right), treasury director general Marwanto Harjowiryono (second right), Fiscal Policy Agency head Suahasil Nazara (left) and budget director general Askolani, interacts with the press in this file picture. (Antara/Aprillio Akbar)
T
he government plans to gradually slash corporate income tax and require foreign entities to collect value-added tax (VAT) from domestic economic activities in a planned new tax bill that is expected to spur investment and take advantage of the growing digital economy.
The government seeks to lower corporate income tax from the current 25 to 22 percent in 2021 and 20 percent in 2023, which would avoid a drastic decrease in tax revenue, said Finance Minister Sri Mulyani Indrawati.
The bill, which is still being discussed within government to be deliberated further with lawmakers, would amend parts of the existing Income Tax (PPh) Law, VAT Law and General Taxation Law (KUP) to make Indonesia’s taxation regime more competitive for investors, she added.
Sri Mulyani said the new bill would highlight the pro-investment stance the Joko "Jokowi" Widodo administration had taken in order to boost the domestic economy, which has seen growth slowing to its lowest level in two years in the second quarter, at 5.05 percent year-on-year, as it fell victim to an ongoing trade war and global economic slowdown.
"Philosophically, [the new bill] is intended to make Indonesia a competitive zone. Indonesia means business," the former World Bank managing director said in the Presidential Office on Tuesday.
By cutting the corporate income tax rate to 22 percent in 2021 until 2023, it was estimated that the tax office would lose up to Rp 52 trillion (US$ 3.65 billion) in potential tax revenue during the period. If the tax is drastically cut to 20 percent in 2021, the ministry estimates a loss of Rp 87 trillion in tax revenue.
On top of the new rate, the government is set to give an additional 3 percent tax cut to newly listed corporations for a five-year period, which could put Indonesia’s tax rate on par with that of Singapore at 17 percent.
