Indonesian government relaxing income tax for DINFRA, REITs, and Asset Back Securities from 15% to 5% - Photo: Special

JAKARTA (TheInsiderStories) – Indonesian government relaxing interest income tax for bond transaction profit from 15 percent to 5 percent starting 2020, said the official today (08/23). The policy has been poured in the Government Regulation Number 55 Year 2019, concerning Income Taxes on Income in the Form of Bond Interest.

The revision of Government Regulation Number 16 Year of 2009 has been signed by President Joko Widodo on August 7. Based on the new rule, government relaxed infrastructure investment fund (DINFRA) investment products, real estate investment funds (REITs), and Asset Backed Securities (ABS) income tax.

In details, in the form of income tax for DINFRA, REITS and ABS set at 5 percent in 2020 and after that the tax income will increase to 10 percent. According to director general for taxes at the ministry of finance, Robert Pakpahan, the policy was an attempt by the government to equalize the DINFRA,REITs and ABS’ tax with mutual funds.

He hope that this policy will be more attractive for investors to invest in the derivative products in the form of three instrument and mutual funds. At the same time deepening the financial sector.

The government continues push tax incentives to attract capital inflows enter the country. For an example, the government plans to provide tax incentives for foreign companies that make profits in Indonesia to reinvest their profits in the archipelago.

The government also asses the possibility to scraps corporate income tax to be equal with other countries. Its expected the adjustments will become an incentive for businesses to produce export-based products.

According to Finance Minister Sri Mulyani Indrawati, there must be a clear design of the tax incentives so that incoming capital flows can have a positive impact on the economy. He added, the provision of tax incentives is crucial for an investment in the developing countries like Indonesia.

For this reason, Indrawati stated the capital inflows must be utilized so not run away from Indonesia like hot money in the capital market. On a separate occasion, Economist Chatib Basri reminded the government to deepen financial markets so that the bond and capital markets did not depend on external financing.

Currently external financing from foreign capital is vulnerable to leaving Indonesia, especially if the Federal Reserves normalizes monetary policy by raising its benchmark rate.

Financial market deepening can be done by providing incentives or rules for State-owned Enterprises, Pension Funds, insurance, Hajj and retail funds to place investments in government bond instruments.

In addition, Indonesia could also implement a “reverse Tobin Tax” which provides tax incentives if investors make long-term profit to re-invest. He added, the government also must create new financial market instruments, so that investors have the option to place their portfolio in the country.

Currently, the government continues to provide other tax incentives, such as tax holidays and tax allowances to support the business players in Indonesia. The country now focus to boost export and investment to maintained the east of doing business ranking and to drive the economic growth.

by Linda Silaen, Email: linda.silaen@theinsiderstories.com