Indonesia plans to cut corporate tax rate in stages to reach 20%

Indonesia plans to cut corporate tax rate in stages to reach 20%

File photo Jakarta city skyline
File photo of the city skyline in Jakarta, Indonesia. (Photo: AFP/Bay Ismoyo)

JAKARTA: Indonesia's finance minister said on Friday (Nov 22) that the government would submit to parliament next month a plan to cut the corporate tax rate in two stages to reach 20 per cent by 2023, down from its current level of 25 per cent.

The tax cut was one of President Joko Widodo's campaign promises when running for a second term in office in an April election, arguing it would attract investment and create jobs.

In an interview with Bloomberg in July, Widodo had said he planned to start cutting the corporate tax rate from 2021, and to 20 per cent or below.

After a cabinet meeting on Friday, Finance Minister Sri Mulyani Indrawati told reporters the government would ask parliament to approve a cut to 22 per cent in 2021-2022 and then to 20 per cent in 2023.

The corporate tax rate for publicly listed companies meeting certain criteria would also be trimmed to 19 per cent in 2021-2022 and 17 per cent from 2023, she said. Companies with at least 40 per cent of their shares sold to the public on the Indonesia Stock Exchange currently pay a 20 per cent tax on profits.

A reduction of 5 percentage points in the tax rate would slash government revenue by 87 trillion rupiah (US$6.18 billion) in a fiscal year, but cutting in stages would limit the lost revenue to 52.8 trillion rupiah, according to estimates by the finance ministry in September.

Indrawati said these estimates would be updated.

"The most important thing is that later, in the design of the 2021 state budget, we will consider the impact of this corporate tax cut. But we continue to hope there will be compensation from improvement in our tax base," she said.

The tax reform bill would also aim to improve compliance and increase Indonesia's tax to GDP ratio, which is currently among the lowest in the Asia Pacific region.

Among the main points of the bill is the government's plan to make tech companies such as streaming firm Netflix pay value-added tax despite not having an onshore office, she said.

Any internet company with significant economic presence in the country would be considered an Indonesian tax resident and thus must also pay taxes on profits, she said.

Under the new bill, the central government would also decide on tax rates paid to regional governments in a bid to improve the business climate, Indrawati said. Regional governments now charge different rates for some taxes, such as property tax.

The bill is likely to be approved by parliament, where parties in Widodo's ruling coalition control 74 per cent of the seats.

Source: Reuters/ga

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