THE JAKARTA POST/JAKARTA

Jakarta, 6 January 2012 - The government has launched a new round of tax incentives aimed at boosting downstream investment, widening the floor for 129 business sectors to be eligible for the so-called “tax allowance”.

Sectors ranging from plantation, mining, real estate, electronics and pharmacy to food are seen as

crucial to developing the under-invested downstream industry so Indonesia does not have to import items that are produced using its own raw materials, officials said on Thursday.

The tax allowance will reduce taxable income to 30 percent of total investment carried over 6 years, accelerate depreciation and amortization, impose income tax of up to 10 percent for offshore taxpayers, and carry forward losses from five to 10 years, they added.

“The impact on investment will be positive. This is a great signal for businesses to up their activities,” Indra Darmawan, director for investment deregulation at the Investment Coordinating Board (BKPM), told The Jakarta Post.

The investment board has targeted Rp 283.5 trillion in direct investment this year, up more than 18 percent from the Rp 240 trillion (US$26.66 billion) targeted for 2011.

Tax allowance is not the same as the “tax holiday” finance minister regulation, which will give five-to-10 year tax breaks in five industrial sectors — base metal, oil refining, petrochemicals, renewable energy, and telecommunications equipment — with an investment of at least Rp 1 trillion.

It is regulated under government regulation number 52/2011, effective since Dec. 22, 2011 — a revised version of the prior 62/2008, which was applicable for only about 38 business sectors; about one-fourth of the new regulation’s coverage.

“Under the previous regulation, businesses’ interests in applying for tax allowance were still limited. That’s why we expanded the sectors and made the product

coverage more detailed,” Indra said, citing an example of a yoghurt business being rejected by the tax office for a tax allowance facility while milk products were included in the regulation.

Fuad Rahmany, the Finance Ministry’s director general of taxation, said that tax incentives would minimize potential tax revenues for the country in the short term, but in the longer run, the incentive-triggered business activities would, in turn, increase tax income.

“With booming economic activities, in the next two or three years, tax revenues will rise,” he said, adding that the tax incentives were given primarily to those with big investments in crucial sectors, which would have multiplier effects on the country’s economy.

“If we open incentives for the small ones, our country will be a tax haven and tax targets will be even harder to reach.”

Sofyan Wanandi, chairman of the Indonesian Employers Association (Apindo), said that small and medium businesses, which were the backbone of the country’s economy, might not benefit from tax incentives because of the difficult and complicated requirements.

“There are not many very large businesses, most of them are in the upstream industry,” he said. “The incentives are a good start, but don’t expect too much with the current world economic situation.”

Nations worldwide are expecting a slowdown in demand as the eurozone debt crisis is seen to take effect this year, especially from global trade, which in turn might hurt global economic growth.

What the ‘tax allowance’ facility covers

1. Investment allowance: Reducing net taxable income to 30 percent of the total investment value, carried over six years — meaning the tax is 5 percent each year

2. Accelerated depreciation and amortization

3. Income tax of 10 percent or lower for dividends paid to offshore taxpayers

4. Loss carry forward of at least five years and up to 10 years depending on following terms:

• Additional one year if the investment is in a bonded industry zone
• Additional one year if the investment employs at least 500 Indonesian workers for five consecutive years
• Additional one year if the investment requires at least Rp 10 billion spending on economic and social infrastructure in its business area
• Additional one year if there is spending of at least 5 percent of the investment value within five years on research and development in Indonesia to develop products and make the production process more efficient
• Additional one year if the investment utilizes at least 50 percent of its raw material and/or output components from Indonesia’s domestic market

Source: Government Regulation (PP) 52/2011—the revised version of PP 62/2008

(Esther Samboh)