Regulation Update

Boosting Research and Vocational Study, the Government Provides Tax Discount up to 300%

The government provides a facility in the form of taxable income reduction up to 300% for business entities running a vocational education, as well as research and development (R&D) activities.

This facility, called as a super deductible tax, is stated in Government Regulation (Peraturan Pemerintah/PP) No. 45 Year 2019, and revises PP No. 94 Year 2010 on Taxable Income Calculation and Income Tax Settlement in the Current Year, effective since 25 June 2019.

The policy mentions three tax facilities offered by the government. First, net income reduction by 60% of the total issued capital in labor-intensive industry, both new investment and business expansion.

Second, gross income reduction facility—which becomes tax base calculation—up to 200% of the total costs incurred by Taxpayers related to job training for students as well as training staffs in a company. This facility is also open to the Taxpayers conducting vocational-based human resource education and development activities.

The list of the participants who may join the job training conducted by a company is as follows:

1. Students of Vocational High School (Sekolah Menengah Kejuruan/SMK) or Vocational Islamic High School (Madrasah Aliyah Kejuruan/MAK);
2. Students of University with Diploma Program in a vocational education;
3. Trainees, instructors, and or training staffs in Employment Training Center; and
4. Individuals not bound in any employment contract with any party, under the coordination of Ministry of Manpower.

Third, gross income reduction facility up to 300% of total costs incurred by domestic companies specific for a particular research and development within a certain period in Indonesia. This R&D is conducted to create innovation, control over new technology, and realization of technology transfer process.

This tax incentive package is aimed at improving human resource quality, boosting national industry competitiveness, as well as expanding manpower absorption. This policy is also in line with the government attempt at involving business world in the human resource capacity development activities. Private sector involvement is highly needed due to the limited government ability in funding the research activities.

However, this policy has not regulated in detail about the mechanism and other policies related to the procedure for obtaining the facilities. Further, the more detailed policies will be stipulated in the implementing regulations such as Minister of Finance Regulation.