The government simplifies the bureaucracy procedures and flows of granting income tax exemption and reduction facilities for certain investments. Among other things, by withdrawing the authority of several ministries/institutions and fully delegating it to the Indonesian Investment Coordinating Board (BKPM) to determine the eligibility of tax holiday and tax allowance recipients.
The simplification of the tax holiday and tax allowance provisions is contained in Regulation of the Minister of Finance (PMK) Number 130/PMK.010/2020 regarding Corporate Income Tax Reduction Facility Granting, which is effective as of 9 September 2020 and at the same time revokes PMK Number 150/PMK.010/2018.
In essence, an income tax reduction of up to 100% or a tax holiday can be given for a maximum of 20 years to companies whose business fields are included in the list of 18 pioneer industries as previously determined.
|No||Pioneer Industries||No||Pioneer Industries|
|1||Basic metal industry||10||Manufacture of robotic component industry supporting the manufacturing industry|
|2||Oil and gas refining industry without or with its integrated derivatives||11||Manufacture of main components of power plant engines industry|
|3||Basic organic chemical industry based on petroleum, natural gas and/or coal||12||Manufacture of main components of power plant engines industry|
|4||Basic organic chemical industry based on agricultural, plantation or forestry products||13||Manufacture of main ship components industry|
|5||Basic inorganic chemical industry||14||Manufacture of main rail components industry|
|6||Main pharmaceutical raw material industry||15||Manufacture of main aircraft components industry and supporting activities of the aerospace industry|
|7||Manufacture of radiation, electromedical or electrotherapy equipment industry||16||Agricultural, plantation, or forestry-based processing industry producing pulp|
|8||Manufacture of major components of electronic or telematics equipment industry||17||Economic infrastructure|
|9||Manufacture of machines and its major components industry||18||Digital economy including data processing activities, hosting and related activities|
However, the pioneer industry criteria do not strictly refer only to the 18 business fields determined. The companies that are not included in the list of business fields mentioned may receive tax reduction incentives as long as they meet the following conditions: (1) have widely interrelated business activities; (2) provide added value and high externalities, (3) introduce new technology; and (4) have a strategic value for the national economy.
In the previous regulation, the determination of a business sector included in the pioneer industry was determined based on the results of cross-ministerial coordination involving the Ministry of Finance and other relevant Ministries/Institutions (K/L). In the latest regulation, BKPM determines pioneer industries business fields based on 11 measurable criteria and quantitative value weighting. (See table)
|1||Filling the industrial tree||10%|
|2||Using the main raw materials produced domestically||12%|
|3||Generating production results used domestically||10%|
|4||The number of similar companies in an area||12%|
|5||Employing a large workforce||10%|
|7||Using eco-friendly technology||10%|
|8||Using new technology on production tools||10%|
|9||Supporting national strategic projects||5%|
|11||Building infrastructure facilities independently||4%|
Based on these criteria and assessment systems, BKPM will assess and determine whether the company is included in the pioneer industry category. The companies deemed meeting the criteria for being a pioneer industry must achieve a minimum score of 80. If after BKPM's assessment the score is lower than 80, the company will be deemed not meeting the criteria of the pioneer industry.
The government considers that the quantitative assessment by BKPM is relatively easier and provides more certainty for companies applying for tax holiday or tax allowance facility.
However, the pioneer industry criteria are not the only fixed indicators in determining the eligibility of the incentive recipient companies. In the new PMK, tax holidays and/or tax allowance may also be given to companies that have been assigned by the government to carry out national strategic projects.
The criteria for companies receiving assignments from the government include corporate taxpayers listed in a ministerial decree or decisions of the head of ministerial-level institutions as well as corporate taxpayers implementing ministerial decrees or decisions of the head of ministerial-level institutions.
The government also regulates the mechanism for facilities provision related to assignments through a business expansion scheme or spin-off, which was not previously regulated. Essentially, the time period and the value of the tax reduction depend on the investment value resulting from the business expansion. If the value of new investment is smaller than the investment resulted from business expansion, the provision of facilities refers to the value of the new investment.
In addition, investors should meet several requirements to get discount or income tax exemption facility, as follows:
- have a new investment plan value of at least IDR100 billion;
- meet the minimum requirements for Debt to Equity Ratio (DER); and
- are committed to start the realization no later than one year after the tax reduction decision is issued.
Another provision to consider is that the tax holiday and tax allowance facilities are not intended for companies that have been or are currently applying for other facilities, such as reduction of corporate income tax, facilities as regulated in Article 31A of Income Tax Law, net income reduction facilities for new investment or business expansion in certain labor-intensive industries business fields, and income tax facilities in Special Economic Zones (KEK).
Through PMK Number 130/PMK.010/2020, the government reaffirms the types of income tax reduction facilities. For a 100% tax reduction, the following investment and tenure provisions apply:
- Tax reduction for 5 years for investments of IDR500 billion to less than IDR1 trillion
- Tax reduction for 7 years for investments of IDR1 trillion to less than IDR5 trillion
- Tax reduction for 10 years for investments of IDR5 trillion to less than IDR15 trillion
- Tax reduction for 15 years for investments of IDR15 trillion to less than IDR30 trillion
- Tax reduction for 20 years for investments of at least IDR30 trillion
Meanwhile, a 50% discount on the value of the tax payable is allocated to new investors ranging from IDR100 billion to IDR500 billion, with a term of up to five years. After the facility utilization period expires, the company may be given another 50% tax reduction for 2 years. After that, the discount may be extended for two years with tax value reduction being 25% of the tax payable. (ASP/AGS).