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Govt extends tax cuts to bolster recovery
In anticipation of a downturn precipitated by the "second wave" of COVID-19 infections across Java, the Finance Ministry has decided to extend its tax incentives while fine-tuning their targeted sectors.
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he Finance Ministry has extended its tax incentives to bolster economic recovery efforts against the impending risk of a downturn following the recent COVID-19 surge across Java.
The incentives would be extended to the end of the year from an initial expiry date of June 30, Finance Minister Sri Mulyani Indrawati said on Monday.
However, the government is aiming for more targeted use of the incentives, meaning that they would no longer be applicable to every sector.
“We will only provide [incentives] for those sectors that still need support,” Sri Mulyani told a virtual press conference on Monday. “We will study which sectors still need it.”
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While announcing the extension of the tax incentives, the government also warned that the surge in COVID-19 cases would hamper economic growth, especially in the second quarter.
The ministry had targeted gross domestic product growth of between 7.1 percent and 8.3 percent for this year, but the prolonged pandemic has prompted it to lower the upper end of that range.
The government has only mentioned three types of incentives that will no longer apply across the board, namely import tax deferrals, reduced monthly corporate tax installments and accelerated value-added tax (VAT) refunds.
Meanwhile, personal exemptions on income tax and tax breaks for small and medium enterprises (SMEs) will still apply to almost all business sectors.
The incentives extended until December include VAT cuts on new homes, but the cut to luxury goods sales tax (PPnBM) for new cars has been extended only until the end of August.
Read also: Govt extends tax cuts for purchase of new cars
Ajib Hamdani, the head of finance and banking at the Indonesian Young Entrepreneurs Association (Hipmi), said that the incentives would help maintain economic growth amid the surge in COVID-19 cases. He added that the policy’s extension would help many businesses remain liquid and reorganize their operations, which was especially important in the event of new mobility restrictions.
“The important thing is [that businesses] should not have to worry about tax issues until the end of the year, because it is already very difficult to survive,” Ajib told The Jakarta Post on Tuesday.
He suggested, however, that the government not shorten the list of eligible sectors, as almost all sectors were suffering because of the pandemic and the economy had not fully recovered. “Therefore, all sectors should be entitled to take advantage of [the tax incentives].”
Center of Economic and Law Studies (Celios) director Bhima Yudhistira questioned the incentives’ effectiveness, arguing that transparency was found wanting among its beneficiaries. He also urged the government to keep track of eligible businesses’ productivity and number of workers, and even publishing that information.
Without transparency, there was no way of knowing if the incentives were working as intended or not, said Bhima, noting a risk that the incentives could go to waste, hurting state revenue and leaving the budget to rely on more debt financing.
“We must ensure that companies that are given incentives do not lay off [employees],” he stressed.
