Further Updates on Tax Incentives for Taxpayers Affected by Covid-19

In relation to our website article on the ‘Tax Incentive for Taxpayers and Its Implementation During Covid-19’¹, the Ministry of Finance Regulation No. 44/PMK/03/2020 on Tax Incentives for Taxpayers Affected by the Covid-19 Pandemic (“PMK No. 44/2020”) has now been superseded by the newly enacted regulation. There are a few important factors that should be taken into consideration from the new Ministry of Finance Regulation No. 86/PMK.03/2020 concerning Tax Incentives for Taxpayers Affected by Corona Virus Disease 2019 (“Covid-19”) Pandemic (“PMK No. 86/2020”), which has been implemented since 16 July 2020.

The important factors include but are not limited to, the government’s efforts in expanding the number of business sectors (“KLU”) that receives tax incentives as well as the extension of the time period in utilizing the tax incentives. Previously, the expansion of the KLU was regulated by two regulations; Ministry of Finance Regulation No. 23/PMK/03/2020 on Tax Incentives for Taxpayers Affected by the Covid-19 Pandemic (“PMK No. 23/2020”) and PMK No. 44/2020. Due to the worsening effect of Covid-19, the government has further increased the number of business sectors included in the KLU in order to aid other business sectors in battling their deteriorating financial situation.

Previously, the government issued a number of tax incentives such as the Article 21 Employee Income Tax (“EIT”), Article 22 Import Tax, a 30% reduction in installments of Article 25 Income Tax, ease of acceleration of Value Added Tax (“VAT”), as well as the restitution and final income tax under the Government Regulation No. 23 of 2018 (“GR No. 23/2018“) for micro, small and medium enterprises (“MSME”). The following changes are the additional framework for the granting of tax incentives that have now been enacted under PMK No. 86/2020:

• EIT

The recipients of EIT tax incentives are employees who work in one of the 1,089 certain KLU, companies that receive the Import Facility for Export Purpose (KITE), and companies in bonded zones. In PMK No. 86/2020, the taxpayers are now obliged to notify the use of EIT tax incentive for central status taxpayers who have branches that is carried out by central taxpayers.

• Final Income Tax incentive based on GR No. 23/2018

PMK No. 86/2020 states that the submission of realization reports for taxpayers who do not have a Certificate can be treated as submitting a Certificate to receive the final Income Tax incentive based on GR No. 23/2018. For the taxpayer, the Certificate will then be issued as long as it meets the requirements for obtaining a Certificate.

• Article 22 Income Tax on Import and Article 25 Income Tax

In PMK No. 44/2020, the taxpayer had to submit the realization report for Article 22 and Article 25 every 3 (three) months, however, it has now been amended by PMK No. 86/2020 that the taxpayer must now submit the realization report every month, which must be submitted no later than the 20^th of the following month subsequent to the tax period end.

• VAT

PMK No. 86/2020 has now broadened the requirements for taxpayers who are looking to benefit from these incentives. In addition to preserving the criteria that must be met (i.e. must be classified as low risk, must be operating within specific lines of business, etc.), PMK No. 86/2020 also specifically states that taxpayers must select the option for the return of tax overpayments when submitting their tax returns. The periodic tax return must be submitted no later than 31 January 2021. This matter was not previously addressed under PMK No. 44/2020.

• Extension of the time limit for tax incentive utilization

The government has now extended the utilization of the tax incentives time limit for specific industries affected by Covid-19 until the end of the tax period in December 2020.  Prior to this amendment, this tax incentive utilization was only valid until the September 2020 tax period. Moreover, the expansion of these incentives is executed as part of the National Economic Recovery Program.

• Expansion of KLU

PMK No. 86/2020 has now added additional KLU that are now entitled to receive the above-mentioned tax incentives. Some of the business sectors include the forestry sector, the professional services sector, the drinking water industry sector, the domestic sea transportation sector, financial services, and cooperatives. The below table is a comparison of the number of business sectors receiving incentives from various prior regulations and the newly ratified PMK No. 86/2020:

The government is continuing to combat the heavy economic repercussions of the current Covid-19 pandemic. These incentivized changes through PMK No. 86/2020 have amended and inserted additional clauses from PMK No. 23/2020 and PMK No. 44/2020 which will hopefully reduce, or at the very least, dampen the financial distress for several business sectors throughout Indonesia.

If there are any queries with regards to how this may affect your business, please contact us for further legal consultation.

This information does not, and is not intended to, constitute as legal advice; instead, all information, content, and materials are for general information only.

1. Please refer to our website article on the “Tax Incentive for Taxpayers and Its Implementation During Covid-19”. ↩︎