More Businesses in Indonesia to Avail Special Tax Incentives as Part of COVID-19 Stimulus
- The Indonesian government is planning to extend the business sectors eligible for tax incentives set out in the second COVID-19 stimulus package.
- These sectors will benefit from the deferment of income and import taxes, while certain employees will also be eligible for income tax breaks.
- The government is preparing other incentives in the form of subsidizing and easing loan payments for micro, small and medium-sized enterprises.
- Investors will need to wait for the upcoming Ministry of Finance regulation to come into law in order to avail the incentives.
Indonesia will be extending its tax incentives (rolled out in the second stimulus package) to cover more business sectors. Currently, the special tax breaks only cover the manufacturing sector.
The second stimulus package was set out in the Ministry of Finance Regulation 23 of 2020 (Reg 23 of 2020) and provides some US$1.4 billion worth of tax breaks. Through the revised Reg 23 of 2020, micro, small, and medium-sized enterprises (MSMEs) will not have to pay the 0.5 percent income tax for the next six months. The government expects this tax break to cost 35.3 trillion rupiah (US$2.3 billion) and cover 18 additional sectors.The decision was taken since the pandemic continues to disrupt the national economy and a wider spectrum of business sectors, causing more than 10 million to become unemployed since the start of the outbreak.
Investors will need to wait for the upcoming Ministry of Finance regulation to come into law in order to benefit from the extended incentives.
Which additional sectors are eligible for tax incentives?
The 18 sectors eligible for the expanded tax incentives are:
- Agriculture, forestry, fisheries;
- Mining and quarrying;
- Processing industry;
- Electricity, gas, steam, and cold air suppliers;
- Water management, wastewater, waste recycling and remediation activities;
- Wholesale, retail, repair, car and motorcycle maintenance;
- Freight and warehousing;
- Hotels and accommodation providers, F&B;
- Information and communication;
- Financial activities and insurance;
- Real estate;
- Professional scientific and technical services;
- Rental activities, warehouse rental business, employment, travel agents including tourism and other business support;
- Human health and social activities;
- Tourism, arts, entertainment, recreation industry; and
- Activities in special bonded zones.
In addition to income tax, these 18 sectors will also be eligible for the deferral of import taxes for the next six months, and workers within these sectors earning an annual income below 200 million rupiah (US$13,000) will be exempted from income tax for the same time period.
What other incentives are in the pipeline for businesses in Indonesia?
The government is preparing relevant regulations to assist the cashflow problems of more than 60 million or so MSMEs; the backbone of the country’s economy. The government will subsidize and ease loan interest payments ranging from two to six percent.
Some 26 million borrowers of the government’s Ultra-Micro Financing Program and the Women-based Financing Program will be allowed to delay their loan repayment for the next six months. The government will cover six percent of the interest.
Another 28.3 million borrowers of the Micro-credit Program with loans between 10 million rupiah (US$654) and 500 million rupiah (US$33,000) will have their loan repayments suspended for the next six months. The government will also cover six percent of the interest for the first three months and three percent for the next three months.
SMEs with loans between 500 million rupiah (US$33,000) and 10 billion rupiah (US$668,000) will be eligible for interest subsidies covering three percent for three months and two percent for the next three months
Lastly, six million farmers and 1 million cooperatives will benefit from interest subsidies of six percent for six months.
How can MSMEs be eligible?
To be eligible, MSMEs will need to be registered with the tax office and have a valid tax number (NPWP). Borrowers must also have a good reputation of paying back their loans before the onset of the virus and must not be blacklisted by the Financial Services Authority (OJK), the government agency that regulates and supervises the financial services sector.