It is tax season, and 14 million individual taxpayers must fill and submit their tax reports. So far, 6.1 million reports have been filed, and the remaining taxpayers have until Mar. 31 to fulfill their obligation. (JG Photo/Afriadi Hikmal)

Luring Investors With an Incentive: Tax Holidays


FEBRUARY 17, 2015

Jakarta. Indonesian Finance Minister Bambang Brodjonegoro has promised to revise a regulation on tax holidays before it expires in August, to provide fiscal incentives to companies to invest in the country.

The various incentives under the regulation are part of a wider fiscal incentive package the government plans to offer to companies, Bambang told reporters in Jakarta on Tuesday, the others being a tax allowance and a scrapping of import duties for companies operating in special economic zones.

“We will revise the Finance Ministry regulation on tax holidays. We will push it so that the process can be done through the one-stop-shop investment service,” Bambang said.

The Finance Ministry last year extended the regulation on tax holidays by a year after it expired in August last year.

Under the regulation, the ministry grants companies operating in certain 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.

This break is available to manufacturing companies who invest at least Rp 1 trillion ($78.2 million) in five “pioneering” sectors: oil refining and basic petrochemicals; renewable energy; base metals; machinery; and telecommunications equipment.

The tax allowance break, meanwhile, is administered under a 2011 government regulation.

This regulation 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.

Bambang declined to say how the government planned to revise this regulation, but stressed that once all the revisions are completed, they would constitute “the biggest” package of fiscal incentives ever granted in Indonesian history.

Investors operating in the country during the 10-year administration of Susilo Bambang Yudhoyono frequently complained that the process for securing a tax holiday was far too difficult to warrant the effort. They also criticized the government for not extending the tax holiday to companies operating in some important sectors such as maritime and infrastructure.

Indonesia’s Investment Coordinating Board (BKPM) chief Franky Sibarani said he had asked the government to revise the policy.

Franky previously said the BKPM had found that less than 10 percent of companies availed themselves of the tax holiday.

BKPM is targeting Rp 519.5 trillion in investments this year, an increase of 14 percent from last year. The bulk of that figure, or Rp 343.7 trillion, is expected to come from foreign investors.

The need for a tax holiday has always been a main concern among large investors considering building a presence in Indonesia, Southeast Asia’s biggest, given the wealth of incentives already offered by other countries in the region.

Indonesia last year rejected a request for a 30-year tax holiday by South Korean giant Samsung Electronics, the world’s biggest phone maker, in connection with its proposal to set up a smartphone factory in Indonesia.

The company has since opted to plant its money in Vietnam, where it had little trouble winning a 30-year tax holiday from the government.