Tax Incentives for Developing Talent in Indonesia

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  • Indonesia offers tax deductions of up to 200 percent for businesses that invest in human resources development activities.
  • A mismatch between labor force skills and the needs of foreign investors is a primary reason why the country is failing attract manufacturers shifting their supply chains as a result of the US-China trade war.
  • The government hopes these incentives will enable its labor force to upgrade their skills and become more competitive.

On September 6, 2019, the Ministry of Finance issued Regulation No. 128 of 2019 (GR 128, 2019), which sets out tax incentives for businesses that invest in developing talent in Indonesia.

GR 128, 2019 follows the tax incentives provided in GR 45, 2019, which set out a range of tax incentives for investment in labor intensive industries, training programs, as well as research and development (R&D). GR 128, 2019 is specific to the incentives offered for training programs, and clarifies that human resource development activities include apprenticeships, work experience programs, vocational programs, and learning activities.

The government hopes this regulation will help attract foreign investors that would like to shift part of their supply chain or sell to the country’s massive market. Some analysts report that the size of Indonesia’s skilled labor base has limited the growth of the country’s industries and their competitiveness in comparison to Southeast Asia neighbors.  

Tax incentives for developing talent

Under GR 128, 2019, investors can receive a gross income deduction of up to 100 percent for the total costs incurred for internships, learning sessions, and training activities. To receive the additional 100 percent tax deductions, taxpayers must provide evidence for the following requirements:

  • A ‘Cooperation Agreement’ with government registered vocational schools, schools, higher-education institutions, or government agencies that organize manpower affairs regarding human resources development activities;
  • The human resources development activities were conducted within ‘certain competencies’ that are taught in vocational schools, higher-education institutions, training centers, or at diploma-program institutions;
  • Not in any financial loss during the fiscal year; and
  • Submit a fiscal certificate that proves the taxpayer is complying with current tax obligations.

GR 128, 2019 describes ‘certain competencies’ as developing specific skills for industries deemed by the government as being vital for the country. These include sectors such as manufacturing, healthcare, agribusiness, digital economy, and tourism, among many others. A full list can be found on page 14 of the regulation.

What costs are covered by the incentive

Under GR 128, 2019, the total ‘costs incurred’ include the following:

  • For the provision of physical facilities in the form of supporting physical facilities for the purpose of carrying out the human resources development activities;
  • Utility bills such as for electricity, water, fuel, maintenance costs;
  • Costs incurred for hiring instructors or educators;
  • Costs for goods and materials for these activities;
  • Honorarium payments given to participants of the human resources development activities (these are not eligible to participants who have a relation of blood family, business, or ownership with the owners and/or administrators of the taxpayer); and
  • Competency certification costs.

Developing local talent to improve competitiveness

The China-US trade has provided investment boons to ASEAN countries, particularly Vietnam, which has emerged as an early winner. Indonesia, however, has failed to attract major manufacturers and investments from this trade spillover.

Despite the country issuing various tax incentives, and widening the number of positions open to expatriate workers, a major issue continuing to plague foreign investors is the skills mismatch of the Indonesian workforce.

The regulation will be advantageous for investors who already have operations in the country and are looking to develop their skilled labor pool. This could improve efficiency and increase employee productivity, enabling businesses to move up the value-chain. The country was ranked 67 out of 119 in the Global Talent Competitiveness Index report in 2019, lagging behind Malaysia (27), the Philippines (58), and Thailand (66), and Singapore (17).

Sectors that could benefit from this new law are those in hospitality and IT, particularly since the government has been pushing for an increase in international tourists and the establishment of more digital startups. The government wants to reap the economic potential of this sector after witnessing the success of local tech company Go-Jek, which contributed US$3 billion to the country’s economy in 2018.

Furthermore, GR 128, 2019 could develop other downstream opportunities such as increasing demand for language – especially for English – and technical training courses, which will become increasingly important as Indonesian companies become more integrated with the global supply chain.


ASEAN Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia and maintains offices throughout ASEAN, including in SingaporeHanoiHo Chi Minh City, and Jakarta. Please contact us at asia@dezshira.com or visit our website at www.dezshira.com.

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