The tax directorate general has proposed reducing the income tax rate to 17 percent for five years for publicly listed companies that have floated 40 percent of their shares on the Indonesia Stock Exchange. (Antara Photo/Aprillio Akbar)

Indonesia to Cut Corporate Taxes; Eyes Netflix, Amazon for Collecting VAT

BY : KUNRADUS ALIANDU

SEPTEMBER 06, 2019

Jakarta. Indonesia plans to cut corporate taxes to boost domestic investment. 

The country's tax office has proposed reducing the income tax rate to 17 percent for five years for publicly listed companies that have floated 40 percent of their shares on the Indonesia Stock Exchange. Such companies currently pay 20 percent income tax, which is already lower than the normal rate of 25 percent.

The government will also cut the corporate tax rate for non-listed companies to 22 percent in 2021 and to 20 percent in 2023. 

Foreign or domestic institutions that own at least 25 percent of the shares in a local company will be exempt from paying income tax on dividends.

Those with ownership of less than the benchmark can still enjoy a similar benefit, if they reinvest their dividends in local businesses.

Domestic individual investors are currently liable for final income tax rate of 10 percent on any dividends they receive. The proposal means they would not need to pay a single cent if they put the money back into the local economy.

These proposals are part of tax bills the government will propose to the House of Representatives by the end of this year, Tax Director General Robert Pakpahan said on Thursday. 

"This incentive is aimed at increasing investment and encouraging more foreign direct investment," he said.

Robert said the government planned to submit three bills to the House, including the general provisions and procedures for taxation bill, income tax bill, and value-added tax bill.

The government will make several other adjustments to its tax policy, including changing fines on back taxes.

He added that the government would also require online e-commerce businesses, both foreign and domestic, to collect value-added tax for every transaction conducted by Indonesians on their platforms. Foreign e-commerce platforms will also be required to pay income tax on all revenue generated in Indonesia.

This would mean subscriptions to video and music streaming services such as Netflix and Spotify, or e-commerce giants, such as Alibaba and Amazon, would also have to start collecting VAT from Indonesians, or risk losing the right to do business here.

To do so, foreign platforms may need to open representatives offices in Indonesia, Robert said.

There is a precedent. Communication and Information Technology Minister Rudiantara said Google would start to collect value-added tax on advertising in Indonesia next month. The company has also been paying tax on income derived from advertising in Indonesia since 2016. 

"So Google is the most cooperative in terms of taxation," Rudiantara told news website Katadata on Thursday.

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