As businesses are forced to stop operations and workers are unable to go to work due to the COVID-19 pandemic, the Indonesian Government has issued several tax incentives to mitigate the economic impact.
The COVID-19 pandemic is bringing the world economy, if not already brought, closer to a recession. The IMF is already projecting a worldwide GDP contraction of 3% for a short-lived outbreak. The Indonesian government’s baseline scenario in this regard is for Indonesia’s economic growth to drop to 2.3%, the lowest in 21 years, with a worst-case scenario of an economic contraction of 0.4%.
In order to avoid that worse-case scenario, the Indonesian government has issued several tax incentives to help businesses stay afloat and to help workers to survive the pandemic with their jobs intact. Through Minister of Finance Regulation No. 23/PMK.03/2020 on Taxation Incentives for Taxpayers Affected by the Coronavirus Pandemic (PMK 23/2020), which came into force on April 1, 2020, the government will bear income taxes, import tax and value-added tax in order to stimulate the economy.
Relaxation of Article 21 Income Tax (PPh 21)
With the issuance of this regulation, the Indonesian government will cover Article 21 Income Tax from employees which were originally cut from the employees’ income. This incentive applies to all employees that fall under the following criteria:
- Employees who receive income from employers:
- Companies with the business field classifications (KBLI) code listed in appendix A of PMK 23/2020; and/or
- Companies determined as Export-Oriented Import Facilities (KITE) companies based on the Decree of the Minister of Finance.
- Have a Taxpayer Identification Number (NPWP); and
- Receive or obtain annual gross income which does not exceed IDR 200 million in the related tax year.
Article 21 Income Tax borne by the government must be paid in cash by the employers at the time of payment of income to the employees and it will not be calculated as taxable income. Furthermore, this incentive will be granted from the Tax Period of April 2020 to September 2020.
These are the procedures to implement Article 21 Income Tax incentive:
- Employers must submit written notifications using the format as stipulated in appendix C of PMK 23/2020 to the Head of Tax Service Office (KPP) where the employers are registered.
- For KITE companies, said notifications must be submitted by employers and shall attach their Decree of the Minister of Finance concerning the determination as KITE companies.
It should be noted that employers must submit reports on the realization of Article 21 Income Tax borne by the government to the Head of KPP where the employers are registered, along with the Tax Payment Slips or Billing Codes, no later than:
- July 20, 2020, for the Tax Period of April 2020 until June 2020; and
- October 20, 2020, for the Tax Period of July 2020 until September 2020.
Relaxation of Article 22 Income Tax on Import (PPh 22 Impor)
Article 22 Income Tax on import is levied by the Foreign Exchange Bank or the Directorate General of Customs and Excise on taxpayers importing goods. These are the criteria for taxpayers to be exempt, as stipulated by Article 22 Income Tax on import:
- Companies with KBLI code listed in appendix F of PMK 23/2020; and/or
- KITE companies.
In order to obtain this incentive, the taxpayers must submit written applications for the Certificate of Exemption of Article 22 Income Tax on import to the Head of KPP where the taxpayers are registered by using the form under appendix G of PMK 23/2020. The incentive period is valid from the date of issuance of the Certificate of Exemption until September 30, 2020.
On a per three-month basis, the taxpayers are required to submit realization reports concerning the exemption of Article 22 Income Tax on import using the form as set out in appendix J of PMK 23/2020 to the Head of KPP where the taxpayers are registered by no later than:
- July 20, 2020, for the Tax Period of April 2020 until June 2020; and
- October 20, 2020, for the Tax Period of July 2020 until September 2020.
Relaxation of Article 25 Income Tax (PPh Pasal 25)
Taxpayers who fulfill the criteria as mentioned in the incentive of Article 22 Income Tax on Import may also be granted a 30% deduction of Article 25 Income Tax installments.
The notification for deduction of Article 25 Income Tax installment must be submitted by the taxpayers in writing using the format as stipulated in appendix C of PMK 23/2020 to the Head of KPP where the taxpayer is registered.
Furthermore, the taxpayers are obliged to submit realization reports on the deduction of Article 25 Income Tax installments every three months to the Head of the KPP where the taxpayers are registered, in which said reports must use the form under appendix L of PMK 23/2020, and no later than:
- July 20, 2020, for the Tax Period of April 2020 until June 2020; and
- October 20, 2020, for the Tax Period of July 2020 until September 2020.
Relaxation of Restitutions of Value Added Tax (PPN)
The Value Added Tax (VAT) incentive in the form of preliminary returns of tax overpayments for low-risk Corporate Taxpayers (PKP) will be granted by the government according to the following criteria of taxpayers:
- Satisfying the criteria as referred to in the incentive of Article 22 Income Tax on Import and Article 25 Income Tax; and
- Those who have submitted a Periodic Tax Return (SPT) of VAT for overpaid restitution with a maximum overpayment amount of IDR 5,000,000,000.00 (five billion rupiah).
The low-risk PKP will be granted a preliminary return under the following conditions:
- PKP are not required to submit any applications for determination as low-risk PKP;
- The Director-General of Tax will not issue any Decree on determination as low-risk PKP; and
- PKP is listed in the KBLI code listed in appendix F of PMK 23/2020, or the KITE facilities provided to PKP are still valid at the time of submission of the notification of overpayment for restitution.
PMK 23/2020 stipulates that the period for the provision of VAT incentives runs for the Tax Period of April 2020 until September 2020, submissions to be no later than October 31, 2020.
The tax incentives mentioned above is one of the ways the Indonesian government is implementing to support businesses and workers who are affected by the highly contagious novel coronavirus 2019. While the economic impact of the COVID-19 pandemic is still ongoing, the stimulus should at least provide some reprieve for Indonesia’s move towards a speedy public health and economic recovery.