Indonesia to Provide Tax Relief to Exporters on Interest Earned from Deposits in Local Banks
Indonesia has announced that it will provide tax relief to exporters on the interest earned from deposits in local banks. The move is part of a larger policy package, launched last month, which aims to jumpstart the economy through greater investment. The performance of the country’s economy has been disappointing for some time now, and the rupiah continues to be weak, falling to its lowest level since the 1997-98 Asian Financial Crisis at the beginning of 2015.
Indonesia has set a target of seven percent GDP growth by 2017, aiming to accomplish this through increased infrastructure spending and greater foreign investment. However, despite some positive steps, 2015 first quarter GDP growth of 4.71 percent has raised concerns that the government’s plans are not being implemented fast enough. In fact, first quarter growth was the slowest year on year growth since the third quarter of 2009. It is hoped that the new tax rates, as well as the wider policy package, will provide the impetus for a stronger economic future for the country.
The new tax rates will be based upon whether the proceeds from exports are converted into rupiah and the length of time they are kept in a local bank. The current tax rate on interest income is 20 percent. The new tax rates on interest earnings for dollar-denominated accounts will be as follows:
- Deposits held for one month: 10 percent
- Deposits held for up to six months: 2.5 percent
- Deposits held for longer than six months: zero percent
If exporters choose to convert their proceeds into rupiah, they will be eligible for an even more generous tax reduction. In this case, the rates will be as follows:
- Deposits held for one month: 7.5 percent
- Deposits held for three months: five percent
- Deposits held for six months: zero percent
Other key parts of the Indonesian government’s policy package include:
- Encouraging national industrial competitiveness through deregulation and de-bureaucratization
- Improving business confidence
- Accelerating national strategic projects by removing problems in the implementation and completion of the projects
- Increasing investment in the property sector
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