The government has issued a new set of tax allowances to attract more sizeable investments into Southeast Asia’s largest economy.
Government Regulation (PP) No. 18/2015, signed by President Joko “Jokowi” Widodo early this month, stipulates that any firms that have made significantly valuable investments, intend to export their manufacturing output, have hired a high number of workers, or used a large amount of local content are eligible to obtain the tax incentives starting in early May.
“Investors who can fulfill one of the criteria will have the chance to benefit from these tax allowances,” said Investment Coordinating Board (BKPM) deregulation director Yuliot.
Similar to the previous stipulation in PP No. 5/2011, investors may obtain a reduction of taxable income of up to 30 percent of their total investments applied over six years. They can also receive accelerated depreciation and amortization, imposition of income tax up to 10 percent for offshore taxpayers and an extension of forward losses from five to 10 years.
According to Yuliot, another two-year extension of forward losses will be awarded to firms willing to reinvest their after-tax earnings for business expansion in the country, an incentive aimed to help prop up the depreciating rupiah,
The new rule also expands the provision of the tax allowances from 129 business sectors to 144. The new sectors include the shipbuilding and marine industries, mineral processing and tourism.
Yuliot further said that applications for the facilities must be submitted to the BKPM and they would undergo a selection process involving three parties: the investment body, the Finance Ministry and related ministries, such as the Industry Ministry, the Agriculture Ministry and the Maritime Affairs and Fisheries Ministry.
The whole process until approval from the Finance Ministry would take no longer than 28 days, he added.
The changes in the tax allowance provision is set to help the government meet its target to generate direct investments totaling Rp 3.5 quadrillion (US$270.19 billion) by 2019, more than double the figure recorded during the 2009 to 2014 period.
For this year, it expects to draw in Rp 519.5 trillion in investments, up 14 percent from last year. Investments, the second largest contributor of growth in Indonesia, will be crucial to drive economic expansion throughout this year amid continuing weak exports.
Business players have welcomed the new incentives, saying that the arrangement offers more flexibility and may thereby allow many more firms to enjoy their benefits.
Indonesian Textile Association (API) chairman Ade Sudrajat said that the fiscal incentives would meet the government’s goals both to create jobs and collect higher amounts of foreign exchange reserves through exports.
“Although the tax reduction will not be very significant, it still helps relieve the burden of business players to a certain extent,” he said.
Ade added that the government would need to apply the tax cut through the simplest method to allure firms to apply.
Echoing a similar view, Indonesian Furniture Entrepreneurs Association (Asmindo) chairman Taufik Gani said that the new rule would enable furniture firms, which ship a lot of their output overseas and use much locally produced raw materials, to get the incentives.
“We do appreciate the new tax allowances and are optimistic new investments in the sector will come,” he said.