The Ministry of Finance will evaluate investment incentives for tax holidays and tax allowances, following an unenthusiastic response from investors last year, Finance Minister Sri Mulyani Indrawati said on Monday (08/01). (Antara Photo/Hafidz Mubarak A.)

Gov't Back to Drawing Board as Investors Shun Tax Incentives

BY :ADINDA NORMALA

JANUARY 09, 2018

Jakarta. The Ministry of Finance will evaluate investment incentives for tax holidays and tax allowances, following an unenthusiastic response from investors last year, Finance Minister Sri Mulyani Indrawati said on Monday (08/01).

"Although in 2017 we had reserved funds for tax allowances and tax holidays, no companies applied … We will figure out which conditions to push to expand their business," Sri Mulyani said during a discussion.

The government offers tax holidays and tax allowances to companies in several sectors deemed as pioneering, including downstream metal production, oil refinery, machinery, telecommunications, agricultural processing, marine transport and manufacturing industries operating in special economic zones.

Under a government regulation, the ministry grants companies who invest at least Rp 1 trillion ($80 million) in the sectors a tax holiday by waiving their income tax requirements for five to 10 years.

Corporate income tax is typically 25 percent of a company’s net income.

Meanwhile, the tax allowance allows eligible companies to enjoy a 5 percent reduction in corporate income tax per year for up to six years, depending on how much they have invested over that period. The regulation also includes lower income tax requirements for dividends.

According to Deputy Finance Minister Mardiasmo, the lack of positive response from foreign investors might be due to unclear procedures and details.

"We will fix the procedures, for example [the explanation] of what commercial production or what counts as leased assets or new assets in the tax regulation. We will clearly outline the details to avoid problems," Mardiasmo said.

Finance Minister Sri Mulyani said the provision of the tax incentives initially aims to encourage investment in various sectors, especially the downstream oil and gas industry.

However, Sri Mulyani said the formulation of the tax incentives, which was prepared by the government and Indonesia's Investment Coordinating Board (BKPM) from 2007-2008, is likely in need of changes to adjust to the current investment climate.

She added that changing the tax incentive scheme and its implementation should not be a long process. The government administers the incentives under regulations, which, unlike laws, do not need to go through a lengthy approval process at the House of Representatives.

BKPM 's data showed total investment — excluding those in the oil and gas and banking sectors — reached Rp 513 trillion by the end of September.

Indonesia recorded Rp 613 trillion of investment in 2016, a 3 percent increase from Rp 595 trillion in 2015.

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