Indonesia' Finance Minister Sri Mulyani Indrawati - Photo: Finance Ministry.

JAKARTA (TheInsiderStories) – Indonesian Finance Ministry finally issued a regulation that would provide a legal basis to offer fiscal incentives for businesses that build vocational education and research and development (R&D) centers, in order to encourage industrial involvement in preparing the country’s quality human resources.

Through PMK No.128/PMK.03/2019 regarding the granting of a reduction in gross income from the implementation of work practices, apprenticeship, or learning in the context of human resource development, the fiscal authority reinforces a number of substances regarding the provision of incentives.

First, the fiscal incentive of a 200 percent tax allowance for businesses that implemented vocational education programs and a maximum 300 percent tax allowance for businesses that conducted R&D activities. The regulation explains the reduction mechanism consists of reducing gross income by 100 percent of the total costs incurred for vocational activities and an additional reduction in gross income by a maximum of 100 percent of the total costs incurred from the activity.

Furthermore, domestic corporate taxpayers carrying out R&D activities in Indonesia, which aim to produce inventions, innovations, mastery of new technologies, and transfer of technology for industrial development. The reduction in gross income is a maximum of 300 percent of the total costs incurred for certain R&D activities in Indonesia which are charged within a certain period of time.

Second, the government also specifies the requirements for the acquisition of fiscal facilities that include practical work activities, apprenticeship, or learning in the context of fostering and developing certain competency-based human resources, having a cooperation agreement, not in a state of fiscal loss in the fiscal year utilizing additional reduction in gross income , has submitted a fiscal certificate.

Third, the affirmation of the participants of practical activities which if referred to belied consists of students including educators in it, students, instructors to individuals who are not bound by work relationships.

Fourth, the breakdown of costs that can get an additional reduction in gross income. Costs that can be deducted include the provision of special physical facilities in the form of training facilities and the costs of supporting special physical facilities including electricity, fuel, and maintenance costs.

In addition, the costs referred to in this regulation also cover instructors, materials or goods, honoraria, up to the cost of competency certification.

Fifth, taxpayers who want to get an additional reduction in gross income make a notification through the online single submission system by attaching a valid work agreement and fiscal statement.

Meanwhile, taxpayers who have obtained the facility are required to submit reports on the costs of work practices to the Director-General of Tax through the Head of the Tax Service Office where the Taxpayer is registered no later than the submission of the Annual Corporate Income Tax Return of the Fiscal Year for the utilization of additional gross income reduction.

Finance Ministry fiscal policy head Suahasil Nazara said days ago that the regulation was a derivative of Government Regulation No. 45 of 2019 in order to encourage investment in labor-intensive industries, support employment creation programs and absorption of Indonesian workers, and encourage involvement of the business community and the industrial world in the preparation of quality human resources.

Nazara said super deduction for research and development to stimulate research interest in the country. Based on data from the Directorate General of Taxes, the cost of R&D in Indonesia is only 0.1 percent of gross domestic product.

This is far compared to Singapore with 2.2 percent, Malaysia 1.3 percent, Germany 2.9 percent, Japan 3.4 percent and South Korea 4.2 percent. Especially because the number of researchers in Indonesia is very small at 89 per one million population. The number lost to Singapore which reached 6,725 people, Malaysia 2,029 people, Germany 4,318 people, Japan 5,328 people, and South Korea 6,856 people.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com