Indonesia's Finance Minister Sry Mulyani Indrawati - Photo: The Finance Ministry.

JAKARTA (TheInsiderStories) – Indonesian House of Representatives has received the most-anticipated tax omnibus law draft on Tuesday (01/28), a month behind government earlier target. The tax bill is one of three omnibus laws that President Joko Widodo is launching in a bid to revise swathes of existing legislation that hamper investment in South-east Asia’s largest economy.

“Of the three omnibus laws submitted by the government, only one has entered, namely the draft tax omnibus law,” Willy Aditya, deputy chairman of the parliament legislative body, told CNBC, without explaining whether the draft was directly discussed by the legislative body, a parliamentary group that sets legislation priorities, or drawn up first with House’ Commission XI.

Corporate tax cuts and moves to make Internet companies pay value-added taxes are among the main changes the bill aims to introduce. A week ago, the parliament has officially endorsed the bill and labor law including one related to the capital relocation to be included in the 2020 national priority legislation program.

Finance minister Sry Mulyani Indrawati has said the taxation law bill consisting of six clusters, 28 articles but amending several laws includes the income tax law, value-added tax (VAT) law, the general provisions and tax procedures law, local taxes and local user fees.

First, the bill will allow the government to slash the tax rate on corporates to 20 percent from 25 percent now. This will be done in phases starting 2021-2023. Also, reduce the tax rates to 17 percent from the previous 22 percent for the go public companies. The new bill will also pave the way for the abolition of dividend tax if it’s reinvested and also cover tax breaks extended to various sectors.

The second cluster, the territorial system, is how foreign dividend income will be tax-free, as long as it is invested in Indonesia. For foreigners who are subject to domestic taxes, the tax obligations are specific to their domestic income.

The third cluster deals with the subject of personal tax. This distinguishes foreigners and Indonesian citizens. Indonesians who live abroad 183 days, they can turn into foreign tax subjects, so they don’t pay their taxes in Indonesia. For foreigners who have lived in Indonesia for more than 183 days, they are subject to domestic taxes and pay their taxes in Indonesia from their income from Indonesia.

The fourth cluster, on how to improve tax compliance, is to rearrange sanctions and interest rewards. Tax sanctions so far, if late, underpaid, or they violate the sanctions is the interest is quite high 2 percent to 24 months so that interest rates can reach 48 percent. Now, using interest rates that apply in the market, plus little administrative sanctions.

The fifth cluster, for the digital economy, is the taxation of electronic transactions that are made the same as ordinary taxes. This includes the appointment of a digital platform for collecting VAT and those who do not have a permanent establishment in Indonesia will still be taxed. This is mainly to respond to digital companies that do not exist in Indonesia but they get income from Indonesia such as Netflix, Amazon, Others.

The sixth cluster, are tax incentives such as tax holidays, super deduction, tax allowance, special economic zones, income tax for securities, and local tax incentives from local governments, according to Indrawati.

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