Indonesia Cuts Tariff on Corporate Income Tax and Officially Applies Digital Tax

The government has lowered tariff for Corporate Income Tax to 22% for 2020-2021 and 20% for 2022 onwards. Previously, the tariff was 25%. Meanwhile, publicly traded companies that have met certain requirements and are listed on the Indonesia Stock Exchange with at least 40% tradable shares, can get an additional 3% tariff reduction from the new income tax rate.

The policy is effective since March 31, 2020 following the issuance of regulation in lieu of law (Perppu) No. 1 Year 2020 on State Financial and Financial System Stability Policy to Manage Corona Virus Disease 2019 (COVID-19) Pandemic and/or to Anticipate Threats that Will Endanger National Economy and/or Financial System Stability.

Read : Facing Critical Condition, Indonesia Poured Out IDR 405 Trillion to Address Covid-19

The adjustment of Corporate Income Tax rate is an additional incentive in the field of taxation as the government's effort to restore the national economy from the negative impact of the corona pandemic (Covid-19). Thus, the tax incentive package related to overcoming corona outbreaks becomes as follows:

1. Income Tax Article (ITA) 22 for workers in the manufacturing sector with a maximum income of IDR 200 million a year are borne by the government of 100%.
2. Exemption from import tax ( PPh impor) for 19 specific sectors, Import Facility for Export Purposes (Kemudahan Impor Tujuan Ekspor/KITE) taxpayer and KITE tax payers for Small-Medium enterprises (SMEs).
3. Reduction of ITA 25 by 30% for specific sectors of KITE and taxpayer of the KITE taxpayers of Small and Medium Enterprises (SMEs/Industri Kecil Menengah/IKM).
4. VAT refund is accelerated for 19 specific sectors to maintain business liquidity.
5. Reduction in Corporate Income Tax rates to 22% for 2020 and 2021 and drops to 20% starting in 2022.
   

Through Perppu Number 1 of  2020, the Government also implemented an extension policy for the implementation of rights and fulfillment of tax obligations, as well as giving the Ministry of Finance the authority to provide customs facilities in the form of exemption or Import duty relief in order to handling emergency conditions and also recovering and strengthening of the national economy.

Read : Responding Corona, Tax Stimulus Package is Officialy Valid for 6 Months

Significant Economic Presence

Not only lowering the tariff of Corporate Income tax for resident taxpayers and permanent establishment (Badan Usaha Tetap/BUT), the government through PERPU number 1 year 2020 also provide special tax treatment of Electronic Commerce (E-commerce/ Perdagangan Melalui Sistem Elektronik (PSME). The E-Commerce business Model intended includes a marketplace or platform provider or merchant’s place or a foreign service provider to transact. The tax treatment includes:

1. Imposition of Value Added Tax (VAT) on utilization Intangible Taxable Income and/or Services from outside Customs Area inside Customs Area using an electronic system.
2. Imposition of Income Tax or electronic transaction tax on online trade transactions conducted by foreign tax subjects who meet the provisions of significant economic presence.
   

Electronic Transaction Tax 

Further explained in the Perppu, foreign merchants, foreign service providers, and / or overseas E-commerce providers who meet the provisions of significant economic presence can be treated as a permanent establishment (BUT) and are subject to income tax.

The Criteria for taxpayers who are deemed to meet the significant economic presence requirements are as follows:

1. Gross circulation of Business group consolidation up to a certain amount;
2. Sales in Indonesia up to a certain amount; and/or 
3. Active users of digital media in Indonesia up to a certain amount.
   

In terms of the determination of permanent establishment is contrary to the application of Tax Treaty (Perjanjian Penghindaran Pajak Berganda/P3B), foreign digital companies that meet the provisions of significant economic presence may be subject to electronic transaction tax.

Electronic transaction tax is levied on transactions for the sales of goods and / or services from outside Indonesia via online to buyers or users in Indonesia carried out by foreign tax subjects, either directly and through overseas e-commerce service provider companies.

The tarrif rate, the basis for imposition and procedures for calculating income tax and electronic transaction tax will be further regulated through Government Regulation (Peraturan Pemerintah/PP) and Minister of Finance Regulation (Peraturan Menteri Keuangan/PMK).

For merchants, service providers, foreign and domestic PMSE/E-commerce operators who violate the provisions are threatened with administrative sanctions in accordance with the General Tax Provisions and Procedures Law (Undang-Undang Ketentuan Umum dan Tata Cara Perpajakan /UU KUP) and termination of digital communication access after being given a warning.

Extra time

Through Perppu No. 1 of 2020, the government has also extended the period of up to six months of the implementation of rights and fulfillment of tax obligations which are due to issueance of a decree ending in a period of force majeure due to the Corona pandemic. The implementation of the rights and obligations are as follows : 

1.  An extension of up to six months is due for filing a Taxpayer's objection.
2.  An extension of up to one month the period of returning tax overpayment (restitution)

In addition, the government also extended a maximum of six months concerning the issuance of the decree letter relating to: 

1. Request for a refund of tax overpayment
2. File an objection letter,
3. Request for reducing or eliminating administrative sanctions,
4. Request for reduction or cancellation of incorrect tax assessment, and
5. Request to cancel the tax audit result
   

The determination of the period of force majeure due to the Covid-19 pandemic refers to the determination of the Government through the Head of the National Agency for Disaster Countermeasure (Badan Nasional Penanggulangan Bencana/BNPB).

Customs Facilities

In this Perppu, the President also authorizes the Minister of Finance to provide customs facilities in the form of exemption or relief of import duties in the context of handling emergency conditions and recovering and also strengthening the national economy.

Several customs policies that have been taken by the Minister of Finance related to the prevention of corona outbreaks are:

1. Simplification / reduction of the number of trade restrictions and prohibitions (larangan dan pembatasan/lartas) of import activities in order to improve the smoothness and availability of raw materials;
2. Reduction in the amount of lartas for import especially for companies with the producer status (the initial stage will be applied to steel products, alloy steel, and its derivative products)
3. Simplification of rules regulated by more than one Ministiries (Kementerian/Lembaga/K / L) (duplication) in the form of horticulture, animal and animal products, as well as drugs, medicinal ingredients, and food.
4. Reduction of the number of lartas for import spesifically for strategic food products used in the manufacturing industry, such as industrial salt, sugar, flour, corn, meat, potatoes, etc.
   

Previously, the government had freed ethyl alcohol excise which would be used as raw material or auxiliary material for making hand sanitizer, surface sanitizer and antiseptic.

Read : Government Exempts Ethyl Alcohol Excise for Sanitizers