Corporate Income Tax Reduction on the Horizon in Indonesia

The Government of Indonesia is currently discussing a proposal to reduce the Corporate Income Tax (PPh Badan) rate by considering factors such as tax base, and this was expected to be finalized by the end of August 2016. The Ministry of Finance has been mulling a revision of PPh Badan for a year, which is based on the income tax law (UU no.36/2008) and its derivative law (PP no.46/2013). The government plans to revise the law regarding (1) value added tax (PPn), (2) income tax (PPh), and (3) general provisions and procedures in taxation. No details are yet confirmed regarding the mechanism of this tariff/rate adjustment.

Indonesia’s current corporate tax rate of 25% puts it at a distinct disadvantage compared to countries such as Singapore. Proposals on the table include a provision to initially reduce the corporate tax burden to 20% and then down to 17%, in line with Singapore, according to the Chief of the Directorate General of Taxation. Lowering the corporate tax rate will give companies financial leeway to invest further or encourage new entities to expand into the country, however a stable currency and the continuing removal of barriers to doing business – such as the complex company registration system is key. Interestingly, Coordinating Maritime Minister Luhut Panjaitan more recently unveiled a tentative plan to set up offshore tax havens on two islands close to Singapore. It is a conscious move to tap firms with the promise of low corporate tax rates right on Singapore’s doorstep. The resort islands of Bintan and Rempang have been earmarked as the tax havens and are located just 60 km from Singapore.

This is an excerpt taken from the September issue of our Indonesia Policy Monitor

 

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