Indonesian government prepares draft law on provisions and taxation facilities that will regulate general, income, and value-added tax to tackle tax evasion - Photo by President Office

JAKARTA (TheInsiderStories) – Indonesian government prepares draft law on provisions and taxation facilities that will regulate general, income, and value-added tax to tackle tax evasion, a minister said on Tuesday (09/03). With the new law, the country have an ability to tax global digital companies such as Google, Amazon, Netflix, and others.

Beside, in response to the development of the digital economy, the government will revise the definition of the permanent business entity in the revise law, said finance minister Sri Mulyani Indrawati after a limited meeting at president office. She added, “So if they [digital firms] do not have an office branch in Indonesia, they will still be subjected to tax liability.”

In addition, the draft bill will also address incentives for taxpayers before it is submitted to the parliament. The minister went on by saying that there was eight number of important points in the bill.

First, the bill will regulate the reduction of corporate income tax rates from 25 percent currently to 20 percent. The minister said the President directed that the State Budget not be depressed due to changes in these tariffs. The regulation is expected to be effective in 2021.

Besides, the bill will also reduce the income tax rate by 3 percent for companies that will sell their shares on the Indonesia Stock Exchange. If the normal tariff is 30 percent, the government will reduce it to 17 percent. Indrawati said that the tariff is the same as what applies in Singapore.

Second, the bill will eliminate dividend income tax from domestic and foreign companies. Indrawati stated that so far dividends from entities or companies that have shares of more than 25 percent are not subject to income tax, but if ownership below 25 percent is subject to income tax. The minister explains that the bill would remove the income tax dividend if it’s invested in Indonesia.

Third, the bill will implement a change in the taxation regime from worldwide to territorial. The minister said the citizens or foreigns would become taxpayers in the country depending on how long they lived in Indonesia.

Fourth, relief sanction. For an example, if a taxpayer corrected an annual notification and experience underpayment, a penalty of 2 percent per month will be imposed.

Within 24 months, the sanctions are burdensome because they can reach 48 percent. According to Indrawati, the sanction would be reduced per month pro-rata based on the benchmark interest rate on the market plus 5 percent.

The minister explained that the pro-rata rate depends on how long the taxpayer is underpaid. For example, if it’s only 2 months then the calculation is 2 months per 12 times the market interest rate plus 5 percent.

Fifth, the bill will relax the right to credit the input tax. She explained that this relaxation would be given primarily to taxable companies who had not produced the products produced as tax objects.

The minister said the bill would regulate the input taxes that previously could not be credited, now could be credited or claimed to reduce tax obligations. The rule, she went on, will be applied to entrepreneurs who earlier have been categorized as not taxable companies and now are taxable companies.

Sixth, the bill will place all tax incentive facilities in one section. The minister explained the bill would regulate all tax incentive facilities such as tax holidays, super deduction, income tax facilities for special economic zones, and for state securities in the international market.

Seventh, the bill will regulate taxes for digital companies such as Google, Amazon, Netflix, Facebook, others, to collect, deposit and report value-added tax. The minister stated that the regulation was implemented so that there was no tax avoidance.

Eight, the bill will change the definition of the permanent establishment so that it is no longer based on physical presence. Indrawati explained that the bill would regulate digital companies that do not have branch offices in Indonesia but have a significant economic presence and still have tax obligations. The bill will regulate income and value-added tax rates for such digital companies.

“President and Vice President asked us to finalize the bill so that it can conduct public consultations and can be conveyed immediately to the House in order to strengthen the Indonesian economy,” Indrawati ended, stating that the bill would be submitted to parliament soon.

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