Indonesia’s Tax Holiday: The Next Big Thing

By M. Syarif Mansur, an employee of the Directorate General of Taxes

The Indonesian Government has finally announced the Minister of Finance Regulation a.k.a. Peraturan Menteri Keuangan (PMK) Number 35/PMK.010/2018, a new regulation of tax holiday that simplify the procedure in obtaining this fiscal facility for investors. The regulation is set for corporate tax payers categorised as pioneer industry.

According to the regulation, The Pioneer Industry is an industry that has broad linkages, provides high added value and high externality, introduces new technology, and has strategic value for the national economy, including:

• Integrated upstream base metal industry (non-steel and steel) with or without derivatives;
• Integrated industrial purification and / or refining of oil and gas with or without derivatives;
• Integrated petrochemical industry based on petroleum, natural gas, or coal with or without its derivatives;
• Integrated basic inorganic chemical industry with or without its derivatives;
• Integrated organic basic chemicals industries derived from agricultural, plantation, or forestry products with or without their derivatives;
• Integrated pharmaceutical raw materials industry with or without its derivatives;
• Semiconductor wafer industry, backlight for Liquid Crystal Display (LCD), electrical driver, or Liquid Crystal Display (LCD) integrated with computer manufacture industry;
• The manufacturing of key components of communications equipment such as wafer semiconductors, backlight for Liquid Crystal Display (LCD), electrical drivers, or Liquid Crystal Display (LCD) integrated with the mobile phone (smartphone) manufacturing industry;
• industrial manufacture of key components of health equipment integrated with the manufacture of irradiation, electromedical or electrotherapy equipment;
• industrial manufacture of major components of industrial machinery such as electric motors or internal combustion motors integrated with the machine-making industry;
• the main component manufacturing industry of machinery such as piston, cylinder head, or cylinder block integrated with the manufacture of four-wheeled or more motorized vehicles;
• robotic component manufacturing industry integrated with manufacturing machine manufacturing industry;
• shipbuilding main component industries integrated with shipbuilding industry;
• the main aircraft component manufacturing industries such as engines, propellers, rotors or structural components integrated with the aircraft manufacturing industry;
• the major railway component manufacturing industries such as engines or transmissions that are integrated with the railway manufacturing industry;
• power industry machinery industries, including the garbage power plant industry; or
• economic infrastructure;

Corporate tax payer conducting a new investment in that Pioneer Industry may obtain single rate 100% deduction for their income tax for at least 5 years, with conditions, that the company must invest at least Rp. 500.000.000.000,- for at least 5 years of investment. A new 30 trillion rupiahs investment company can even gain tax holiday for 20 years.

How about existing investors? Existing investors would obtain a tax holiday if they expanded their businesses. Under the new tax holiday regulation, there also will be a transitional period of two years after tax holiday term over. A company may still obtain 50% deduction for their income tax. PMK Number 35/PMK.010/2018 has already implemented this new tax holiday regulation since April 4th, 2018.

Minister of finance, Sri Mulyani, believes, that Indonesia Tax Holiday facility gives more competitive benefit and superiority among other ASEAN countries. With current national economy infrastructure development, Indonesia has set a very high bar to beat. Even with political issues, Indonesia is still acknowledged as the best place for investment. With those all details, who can disprove it?