August 15, 2011 was definitely one of the most momentous dates for new business players of the pioneer industry, where the Government announced a tax holiday on Corporate Income Tax for the new pioneer industry with certain criteria under the Finance Minister Regulation No.130/PMK.011/2011 (hereinafter referred to as PMK 130). What the Government offers in the tax incentive and which pioneer industrial companies are entitled for it, these are surely matters to be acknowledged.
The Government has once more given tax stimulus for the private sectors, where this time is for the pioneer industry. In PMK 30, pioneer industry is defined as an industry having a large interconnection, providing added value and high externality, introducing new technology, and containing a strategic value to the national economy.
Considering a huge amount of investment which is generally required for this industry, matters to attract big investors are of the Government’s intention. Off course, in the end, it is expected to generate more new potential tax subjects from the industry.
Here are the types of business categorized as pioneer industry based on the PMK 130:
1. Base metal industry;
2. Drilling industry in natural oil and/or organic base chemical from natural oil and gas;
3. Machinery industry;
4. Industry in the sector of renewable resources; and/or
5. Communication device industry.
Similar with the application of other tax incentive when an industrial company is categorized as pioneer industry, it does not automatically obtain the tax incentive. The criteria to be fulfilled are:
1. Having a new capital investment plan validated by an authorized institution, at minimum of IDR 1 Trillion;
2. Placing a fund in Indonesian banking, at minimum of 10% from the total of capital investment plan, and the fund may not be withdrawn before the capital investment realization is started;
3. Having a status as Indonesian legal entity in which its validation is at the latest within 12 months before August 15, 2011;
4. Having realized all of its capital investment; and
5. Having commenced its production commercially.
Type of Facility
Compared to the other current tax incentives, the tax incentive for the new pioneer industrial companies is provided far more beneficial.
It is not related to the form of rate and net income reduction, it literally exempts the selected pioneer industry (meeting the criteria) from Corporate Income Tax imposition within a period of 5 (five) up to 10 (ten) years.
Further, after the period ends, another tax incentive may be granted. For those meeting certain criteria, a reduction to Corporate Income Tax is applied at 50% for 2 (two) years. Moreover, the period of reduction may also be extended by the Finance Minister under the purpose of maintaining the national industry competitiveness and strategic value of certain business activities.
To Obtain the Facility
Having fulfilled the criteria as mentioned above, a new pioneer industrial company shall firstly submit an application to the Minister of Industry or the Head of Capital Investment Coordinating Board (BKPM).
Upon the application received by the pioneer industrial company, the Minister of Industry or the Head of BKPM after coordination with the relevant department will submit a proposal to the Minister of Finance by enclosing the copy of the following documents:
1. Card of NPWP;
2. Letter of new capital investment agreement issued by the Head of BKPM, completed with the details; and
3. The evidence of the fund placing in Indonesian bank at minimum of 10% of the capital investment plan total.
In addition, the proposal submitted by the Minister of Industry or the Head of BKPM to the Finance Minister shall be enclosed with the details of research concerning:
1. The infrastructure availability in the investment location;
2. Domestic labor absorption;
3. Review of the criteria fulfillment as pioneer industry;
4. The clear and concrete plan of technology transfer stage; and
5. The availability of tax sparing (the recognition of exemption and reduction facility provisions in Indonesia for Income Tax calculation in the domiciled country with the same amount to that of given) in domiciled country.
Besides, the proposal submission by the Minister of Industry or the Head of BKPM to the Finance Minister may only be filed within 3 (three) years since PMK 130 is issued on August 15, 2011.
Obligations under the Facility
The pioneer industrial companies under this tax incentive facility shall submit a periodic report to the Director General of Taxes and the Verification Committee of Corporate Income Tax Exemption or Reduction Provision regarding:
1. The utilization of fund placed in Indonesian banking at minimum of 10% of the capital investment plan total; and
2. Realization of capital investment after audit.
And, other tax obligations related to transactions made by such pioneer industry companies with their transaction partners are still to perform, such as tax withholding and collection. The tax incentives under the PMK 130 are only related to the tax obligation on income received, but not on income paid by them.
The pioneer industrial companies, however, should be careful in using the facility. They should firstly pay attention to the period of the tax incentives granted where no tax withholding and collection shall be imposed on their income within the period. Further, upon other income (other than from their pioneer industry), Income Tax withholding and collection should be still conducted based on the prevailing laws.
Other Corporate Income Tax Facility
Here are the other corporate income tax incentives stipulated by the Government for certain sectors:
1. Facility for Limited Corporations The facility offered is a 5% rate reduction based on Article 17 paragraph (2b) of the Income Tax Law. The criteria of Limited Corporations to enjoy this facility are regulated in the Finance Minister Regulation No.: 238/PMK.03/2011.
2. Facility for Companies with Turnover Not More than IDR 50 Billion Resident Taxpayers with turnover not more than IDR 50 Billion may obtain 50% Corporate Income Tax reduction. However, the 50% discount is only applicable for Taxable Income from turnover up to IDR 4.8 Billion, as stated in Article 31E of the Income Tax Law.
3. Facility for Entrepreneurs in the Integrated Economic Developmental Area (KAPET).
Referring to the Government Regulation (PP) No. 20 Year 2000 as lastly amended with PP No. 147 Year 2000, the facilities cover the following:
a. 5% net income deduction per year from the total of capital investment prevailed within 6 (six) years;
b. depreciation acceleration;
c. extension of loss compensation up to 10 years;
d. Income Tax Article 26 of 10% or lower referring to the Tax Treaty on dividend paid to Non Resident Taxpayers.
4. Facility for Entrepreneurs in certain Business Sector and/or Area.
Under Article 31A of the Income Tax Law and PP No. 1 Year 2007 as lastly amended with PP No. 62 year 2008, the type of facility given is similar to that of given to the entrepreneurs in KAPET, as previously explained in point #3.
Upon all the tax incentives regulated by the Government, the new pioneer industrial companies have the chance to select only one of the tax incentives favorable from them, as this limitation is clearly affirmed in the PMK 130.
As to conclude, with the more opportunities given by the Government to the pioneer industry, it is now the new pioneer industry’s turn to decide which one beneficial most for their business. In return, both the Government and the related industrial players are able to achieve their respective goals.
