Ministry of Finance: Tax Holiday is the Most Favoried Incentives for Pioneer Industries

The Ministry of Finance revealed that tax holidays are one of the most sought-after tax incentives for pioneer industries. According to the 2023 Tax Expenditure Report, the value of tax expenditure for this facility reached IDR 5.18 trillion, granted to 20 corporate taxpayers throughout 2023.

Citing from bisnis.com, although the utilization value in 2023 was lower compared to 2021 and 2022, which reached IDR 7.3 trillion and IDR 7.94 trillion, respectively, this facility remains more popular than the tax holiday in Special Economic Zones (KEK) or industrial zones. In 2023, the tax expenditure for the tax holiday in KEK was only IDR 36 billion, while there was no realization at all for industrial zones.

To encourage investment, the government has decided to extend the tax holiday for pioneer industries until December 31, 2025. Previously, this incentive was regulated under Ministry of Finance Regulation (PMK) No. 130/2020, which was set to expire on October 9, 2024. This extension is outlined in PMK No. 69/2024, which amends the previous regulation.

For information, the tax holiday incentive, which provides a 50% to 100% reduction in corporate income tax, applies to new investments in 18 pioneer industry groups with a minimum investment value of IDR 100 billion. The tax reduction period varies, ranging from 5 to 20 years, depending on the investment amount.

Not Applicable to Foreign and Multinational Companies

The tax holiday is designed to support pioneer industries that have extensive linkages, high added value, introduce new technologies, and are strategic for the national economy.

However, there is a significant change in this tax holiday extension. The incentive will no longer apply to foreign or multinational corporations, in line with the implementation of a global minimum tax of 15% under the Global Anti-Base Erosion (GloBE) principle.

According to Article 3, Paragraph 2 of PMK No. 69/2024, the following pioneer industries qualify for the tax holiday:

1. Upstream basic metal industries, including iron and steel or non-iron steel, with or without integrated derivatives.
2. Oil and gas refining industries, with or without integrated derivatives.
3. Basic organic chemical industries sourced from oil, natural gas, and/or coal, with or without integrated derivatives.
4. Basic organic chemical industries sourced from agricultural, plantation, or forestry products, with or without integrated derivatives.
5. Basic inorganic chemical industries, with or without integrated derivatives.
6. Primary pharmaceutical raw material industries, with or without integrated derivatives.
7. Manufacturing industries for irradiation, electromedical, or electrotherapy equipment.
8. Manufacturing industries for key components of electronics or telematics equipment.
9. Machinery and main machinery component manufacturing industries.
10. Robotic component manufacturing industries support the production of manufacturing machinery.
11. Key component manufacturing industries for power generation equipment.
12. Manufacturing industries for motor vehicles and main motor vehicle components.
13. Manufacturing industries for main ship components.
14. Manufacturing industries for main railway components.
15. Manufacturing industries for main aircraft components and aerospace support activities.
16. Processing industries based on agricultural, plantation, or forestry products producing pulp, with or without derivatives.
17. Economic infrastructure.
18. Digital economy activities, including data processing, hosting, and related activities.

Through this policy, the government aims to encourage strategic investments, enhance the competitiveness of pioneer industries, and increase their contribution to the national economy. (KEN)