Deputy vice minister of finance, Suahasil Nazara reported, until April, Indonesia' budget deficit at 0.44 percent of gross domestic products - Photo Privacy

JAKARTA (TheInsiderStories) – The Ministry of Finance (MoF) will issue new provisions on tax holidays for downstream investment, said one senior official last week. State-owned energy firm PT Pertamina will become the first taxpayer who receives the tax holiday.

Head of Fiscal Policy Office of the MoF Suahasil Nazara said, Government will exempt 20 years tax for new investment with worth Rp 30 trillion (US$2.19 billion). However, this rule is still applied cluster based on the value of its investment.

For investors who invested capital of between Rp500 billion to Rp1 trillion, He explained, will get a tax holiday for five years. Then, the investment amount of Rp1 trillion to Rp5 trillion received 7 years of tax exemption, Rp5 trillion to Rp15 trillion earned 10 years, Rp15 trillion – Rp30 trillion get 15 years, and more than Rp30 trillion received tax exemption for 20 years.

Nazara also guarantee the process of filing tax holiday this time will make  more easier for investors through the Investment Coordinating Board, simultaneously when the investor to register the investment.

Nevertheless, a number of institutions will conduct an audit to determine the feasibility of tax holiday, including the Directorate General of Taxes. Clearly, he said, the tax holiday will target the downstream investment so that it can create a low cost structure.

Finance minister Sri Mulyani Indrawati will sign the new ministerial decree this week.

Based on the previous of the Minister of Finance decree PMK No. 159/PMK.010/2015 on Provision of Income Tax Reduction Facility there are nine business sectors can get a tax holiday with a minimum investment of Rp1 trillion, except telematics industry or telecommunications and informatics industry of Rp500 billion.

The nine industrial pioneers are upstream metal industry, oil refinery industry, basic organic chemical industry derived from oil and gas, industrial machinery producing industrial machinery, telecommunication, information and communication industries, marine transportation industry, processing industries in Special Economic Zones, economic infrastructure other than the scheme of Government Cooperation and Business Enterprise.

Indonesia has offered tax holidays since 2011, but the approval process has been complicated, and only a few companies have obtained them. Current tax holiday rules offer a 10-100 percent income tax reduction for firms in pioneering industries for a maximum 15 years, though the minister can give an additional five years.

Boosting investment has been an economic priority for President Joko Widodo, particularly since sluggish consumption has capped annual economic growth at around 5 per cent for several years.

Indrawati stated, her ministry prepared four incentives were in the form of tax allowances, tax holidays, tax deductions for small and medium enterprises, as well as incentives for companies that carried out research and development activities.

On tax allowances, she said the government would expand the number of business sectors that would be eligible for the incentives, including income tax deductions. For the expansion plan was based on an instruction issued by the President and recommendations from a number of ministries.

The second incentive was a tax holiday in which the government would offer income tax deductions of between 10 and 100 percent. Tax allowance and tax holiday rules, last revised in 2016, had failed to attract a significant amount of investment into the country.

The third incentive is related to tax deductions for SMEs and fourth fiscal incentive is the income tax deductions of up to 200 per cent for companies carrying out R&D activities, she added.

In 2017, Indonesian investments reached Rp692 trillion, representing an increase of 13.1 percent from Rp612 trillion worth of total direct investment in the previous year.

US$1: Rp13,700