Indonesia plans tax cuts to lure investment

Indonesia plans tax cuts to lure investment

Lower taxes to lure companies seeking to relocate businesses from China

The corporate tax will be gradually lowered and companies listing their shares may be subjected to a lower rate, Finance Minister Sri Mulyani Indrawati said. (Bloomberg photo)
The corporate tax will be gradually lowered and companies listing their shares may be subjected to a lower rate, Finance Minister Sri Mulyani Indrawati said. (Bloomberg photo)

Indonesia plans to cut tax on corporates and scrap a levy on dividend to make companies in Southeast Asia’s largest economy draw more foreign investment amid a global slowdown.

The corporate tax will be gradually lowered to 20% starting 2021 from 25% now and companies listing their shares may be subjected to a lower rate of 17% for a period of five years, Finance Minister Sri Mulyani Indrawati told reporters after a cabinet meeting in Jakarta on Tuesday. The government will overhaul laws related to value-added tax, income tax and general taxation, she said.

Lower taxes may help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate businesses from China as it spars with the United States on trade. President Joko Widodo, who won a second five-year term in April, has pledged to slash taxes and overhaul labour laws to draw billions of dollars in foreign investment to bolster growth that slowed to 5.05% in the second quarter, its slowest pace in two years.

“We will continue to focus our tax policy to be in line with international best practices,” Indrawati said. “We have calculated the possible impact on budget” and tax changes will be managed to “not put it under too much pressure,” she said.

The tax on dividend earned by local and foreign investors will be eliminated if it’s reinvested, Indrawati said. The revised regulations will also cover tax breaks extended to various sectors, she said, adding that individuals -- foreign or domestic -- will be required to pay taxes only if their stay exceeded 183 days.

Lower penalty

The government will also slash the penalty on taxpayers who correct their returns after filing and owe money to the exchequer, the minister said. The changes to the tax laws will require parliament approval and Jokowi, as the president is known, has said it will be a priority in his second tenure starting next month.

“The companies have been waiting for these tax changes to help them improve business, which in turn will make Indonesia more competitive compared to its peers,” said Dian Ayu Yustina, an economist at PT Bank Danamon in Jakarta. “Investment is one economic growth component that has been slowing. Attracting multinational companies with export-oriented activities can help Indonesia boost exports.”

With Indonesia’s Internet economy forecast to swell to US$100 billion by 2025, the tax rules will be amended to require foreign companies such as Google and Amazon.com Inc. to pay corporate tax and collect, report and submit value- added tax, Indrawati said. That will also ensure a level-playing field for the digital players with the local firms, she said.


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