Indonesia Expands List of Pioneer Industries Eligible for a Tax Holiday
Indonesia’s Ministry of Finance (MOF) has announced that it will extend its list of “pioneer” industries that qualify for tax holidays. Such companies are eligible to receive a 70 percent exemption from income tax for between five and 15 years, as well as additional financial incentives. The proposed changes should take effect later this month.
The widening of the number of industries that qualify for the tax holiday appears to be a strategy by the Indonesian government aimed at attracting more investors into the country’s strategic industries.
Currently, the following industries are classified as pioneer industries:
- Oil refining (including chemicals derived from oil and natural gas)
- Communication devices
Under the new regulations, four more industries will now be added to the list of pioneer industries, these are the following:
- Agricultural processing
- Marine transportation
- Manufacturing industry in a special economic zone
- Economic infrastructure (excluding taxpayers using a government and business entity partnership scheme)
Speaking of the newly added industries, Indonesia’s Minister of Finance, Bambang P.S. Brodjonegoro, stated, “This has been consistent with the government’s vision, boosting maritime, boosting infrastructure, and down streaming.”
Previously, in May of this year, Indonesia extended its tax holiday for the first five pioneer industries from 10 to 15 years. It now appears as if the four new industries will also see an extended tax holiday. It has also been reported that the MOF will have “discretionary” authority to extend the tax holiday to up to 20 years if the investment is considered strategic for the domestic economy.
As the process now stands, the country’s Ministry of Industry will recommend the list of companies that are both interested and eligible for the tax holiday. However, the MOF will make the final determination on whether the company qualifies for the tax incentive.
The regulatory changes to the tax holiday come as Indonesia struggles to find a way to encourage greater investment into the country and grow its exports. For the second quarter in a row, Indonesia’s economy contracted as exports and government spending continued to decline – GDP was down 0.18 percent. The country’s currency, the rupiah, also fell. The rupiah is now the worst performing currency in Asia for this year.
In addition to the tax holiday, companies engaged in pioneer industries are also eligible to receive further financial incentives, these include:
- Import duty exemptions,
- 10 percent income tax on dividends
- A taxable income reduction worth up to 30 percent of the realized investment spread over six years
- Accelerated depreciation and amortization
- A maximum loss carry-forward facility for a period of 10 years
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