The tax changes in President Joko Widodo’s first Perppu of 2020 are meant to create enough fiscal space to both fight the pandemic and ensure a speedy economic recovery.
To safeguard the national economy against the COVID-19 pandemic, President Joko Widodo issued Government Regulation in Lieu of Law Number 1 of 2020 on State Financial Policy and Financial System Stability for Mitigation of Pandemic Corona Virus Disease 2019 (COVID-19) (Perppu 1/2020), which came into force on March 31, 2020. One of the many substantial policies addressed in Perppu 1/2020 is taxation. They are as follows:
Corporate Tax
One of the main regulatory changes introduced in the Perppu is on Corporate Tax, in which the Indonesian Government provides a reduction of Corporate Income Tax of 22% (twenty two percent) from the current 25% (twenty five percent) for companies and permanent establishment (BUT), which applies for the Tax Years 2020. For Tax Year 2022, the tax deduction will be 20% (twenty percent).
Public companies listed in the Indonesia Stock Exchange (IDX) that sell more than 40 percent of their shares to the public and meet certain requirements will be eligible for an additional 3% (three percent) reduction.
E-commerce Tax
With the issuance of this regulation, domestic and foreign online business practitioners that conduct e-commerce activities in Indonesia will be charged:
- value added tax (VAT) on taxable intangible goods and/or services sold through their e-commerce platforms.
- income tax or electronic transaction tax on their e-commerce activities.
Foreign online business practitioners with a significant economic presence in Indonesia will be declared as permanent establishments. The significance of the company’s economic presence is determined by the company’s gross circulated product, sales and/or active users in Indonesia. As is all permanent establishments, these companies will now be subject to Indonesian taxation regulations.
In the event that the Indonesian government is not able to determine certain foreign online business practitioners as permanent establishments due to tax treaties with certain countries, these companies will be charged an electronic transaction tax on their company’s sales in Indonesia.
Further provisions regarding the rate, object and calculation of the income tax and the electronic transactions tax will be regulated through a Government Regulation (PP).
Under Perppu 1/2020, domestic and foreign online business practitioners that fail to comply with the provisions will be subject to:
- administrative sanctions in accordance with prevail Indonesian taxation regulations.
- termination of companies’ access by the Minister of Communication and Information
Taxation Obligations
Via Perppu 1/2020, the Indonesian government will further provide relaxation to taxpayers in regards to the extension of filing an objection to tax payments and returning tax overpayments due to the COVID-19 pandemic.
For the submission of objections, the Indonesian government has decided that the due date for the submission of the objection is extended to a maximum of 6 months. Meanwhile, the due date for returning tax overpayments has now been extended for a maximum of 1 month.
Furthermore, the due date for requesting the return of overpayment of taxes, filing an objection letter, as well as requesting a reduction or an elimination of administrative sanctions, cancellation of incorrect tax assessments, and cancellation of inspection results will be extended for a maximum of 6 months.
The severity period due to the COVID-19 pandemic refers to the determination of the Indonesian government through the Head of the National Disaster Management Agency (BNPB).
Import Duties Exemption
Lastly, Perppu 1/2020 stipulates that the Minister of Finance has the authority to grant exemptions or relaxations on import duties, which can be done in the context of handling the COVID-19 pandemic and in facing any threats that endanger the national economy and/or the stability of the financial system.
Under this authorization, changes to imported goods which are exempted from import duties based on their intended use under the article 25 paragraph (1) and article 26 paragraph (1) of the Customs Law will now be regulated through the Regulation of the Minister of Finance (PMK).
It is clear that the changes in the tax regulation stipulated in Perppu 1/2020 is meant to ensure that Indonesia has enough fiscal space to mitigate the impact of the COVID-19 pandemic as well as to ensure a speedy economic recovery.
It should be noted that while a Perppu is legally binding at the time of issuance, the government must still submit the Perppu to the Parliament for it to become law. The Parliament has the power to reject the Perppu and force the government to retract it. In this regard, the Perppu has been handed over to the Parliament on April 2, 2020, and, as of the time of writing, is still being deliberated by lawmakers.