PMK 136/2024: The Liminality of Tax Incentives

Every dusk is a paradox. The beauty of the reddening sky signals a farewell to the day. Yet behind it, we prepare ourselves for a new beginning. This is what’s happening with Indonesia’s tax incentive policy.

I believe there are moments when a policy stands between two poles, not entirely over, but no longer the same. This is what we call liminality: an ambiguous threshold space where the past still casts its shadow, while the future begins to knock on the door.

In the context of Indonesian taxation, the issuance of PMK 136/2024 marks the presence of such liminality. Traditional tax incentives, once the main weapon to attract investment, are now at a crossroads. Is this the twilight of tax incentives, or the dawn of a more adaptive fiscal strategy in the era of the Global Minimum Tax?

The global tax landscape is undergoing a drastic shift, as countries around the world, through the OECD, have agreed to implement Pillar Two of the Base Erosion and Profit Shifting (BEPS) 2.0 initiative.

This OECD initiative aims to create a fairer tax system in the era of globalization, particularly through the Global Minimum Tax (GMT). The policy requires multinational enterprises to pay at least a 15% effective tax rate (ETR) in every jurisdiction where they operate.

READ: Indonesia Officially Gains Qualified Status for Global Minimum Tax, Here Are the Implications!

For developing countries like Indonesia, this dynamic presents both significant opportunities and major challenges in maintaining investment competitiveness while complying with global rules.

The Indonesian government has acted swiftly in response. Through PMK 136/2024, it regulates the implementation of the Global Anti-Base Erosion (GLoBE) Rules, complete with instruments such as the Qualified Domestic Minimum Top-up Tax (QDMTT) and Qualified Refundable Tax Credits (QRTC). This regulation also signals Indonesia's fiscal policy alignment with increasingly stringent international tax governance.

The Fading Influence of Tax Incentives

Before the Global Minimum Tax (GMT) came into effect, countries around the world relied on tax incentives such as tax holidays and low tax rates to attract investment and drive economic growth. However, the introduction of the global minimum tax rules has gradually diminished the appeal of such strategies.

Companies paying taxes below the 15% threshold may still be subject to top-up taxes imposed by other jurisdictions. In other words, overly generous incentives can be easily neutralized.

READ: Guidelines for Adjusting GloBE Profit or Loss Under PMK 136/2024

This shift compels governments to design new incentive approaches that are not only aligned with global standards but also remain attractive to investors. Such strategies are increasingly important, as competition among countries to attract investment no longer relies solely on tax benefits, but also on the creation of a conducive and globally competitive business environment.

The OECD, in its report titled “Tax Incentives and the Global Minimum Corporate Tax”, outlines several key issues related to GMT and tax incentives.

First, tax incentives that fall under the category of covered taxes are more directly impacted by the GLoBE rules. These include most income- and expenditure-based incentives, such as reduced corporate income tax rates, tax exemptions, investment tax allowances, and tax credits that lower taxable income or tax liabilities on specific investments.

On the other hand, targeted tax incentives, those applied to specific types of income or expenditure, are less impacted than broad-based incentives. This is because income subject to lower tax rates is averaged with income taxed at higher rates, thus limiting the overall impact on the Effective Tax Rate (ETR).

Similarly, tax incentives that encourage real economic activities, such as investment in tangible assets or job creation, are not significantly affected by the GLoBE rules. This is due to the presence of the Substance-Based Income Exclusion (SBIE).

Additionally, the OECD views Qualified Refundable Tax Credits (QRTC) as one of the most relevant incentive tools in the GMT era. Since QRTCs are refundable within four years, they are treated as income under the GLoBE rules, rather than as a reduction of covered taxes. While QRTCs can still reduce a jurisdiction’s GLoBE ETR, their impact is generally smaller than that of other types of tax credits.

Regarding tax incentives that create temporary differences between commercial and fiscal accounting, such as accelerated depreciation, these typically do not trigger additional top-up taxes under the GLoBE rules. As long as such incentives are linked to tangible assets, they are excluded from recapture rules. However, for non-tangible assets, if the temporary difference lasts more than five years, the GLoBE rules may begin to affect the tax treatment.

Meanwhile, permanent differences between commercial and fiscal accounting, such as lower corporate tax rates, are often impacted by GLoBE rules because they lead to a reduced ETR.

How Can Indonesia Respond?

To adapt to this new era, the Indonesian Government needs to design incentives that are aligned with the GLoBE rules, yet still attractive to investors. Several strategies that can be implemented include:

1. Focus on Substance-Based Incentives

Substance-based incentives are more compatible with the GMT rules because they do not directly reduce the Effective Tax Rate (ETR). The government can offer tax benefits to companies that invest in tangible assets, create employment, and conduct research and development (R&D) activities. Schemes such as super deductions for R&D and incentives for labor-intensive industries can become key options.

2. Optimize QRTC

The government can expand the scope of Qualified Refundable Tax Credits (QRTC) for strategic sectors such as green energy, digital technology, and high-value-added manufacturing. With well-targeted QRTCs, Indonesia can not only attract investment but also drive economic transformation toward a more sustainable direction.

3. Limit Tax Holidays and Low Tax Rates

In the GMT era, tax holidays and low tax rates are becoming less effective in attracting investment. As an alternative, the government can offer:

a. A competitive DMTT (Domestic Minimum Top-up Tax) that does not sacrifice investment competitiveness, allowing the additional tax to stay in the domestic treasury rather than be shifted to other jurisdictions.

b. Subsidy and direct incentive schemes, such as cash grants, are especially for infrastructure development and environmental sustainability projects. Other alternatives include research and innovation subsidies, low-interest financing schemes, or support for the development of industrial-supporting infrastructure.

c. Performance-based incentives that are only granted to companies meeting certain targets, such as job creation, use of local raw materials, or carbon emission reduction.

A New Chapter for Sustainable Fiscal Stability

The implementation of the Global Minimum Tax (GMT) through PMK 136/2024 is not merely a technical adjustment. More than that, it marks a pivotal moment for Indonesia to shape a healthier, more competitive, and sustainable investment ecosystem.

Taxation will, of course, remain an important factor. But in the long run, investors will increasingly consider non-tax aspects such as political stability, regulatory consistency, infrastructure development, bureaucratic efficiency, the availability of skilled labor, and the innovation ecosystem.

With a more holistic approach, Indonesia has the opportunity not just to comply with global standards but also to strengthen its competitiveness on the international stage.

The GMT may signal the end of the era of traditional tax incentives, but at the same time, it can serve as the starting point for a new phase in Indonesia’s fiscal policy, one that is more strategic and focused on long-term growth.

Ultimately, liminality always demands the courage to move forward. It is not just an empty pause, but a critical moment to determine direction: whether we remain attached to the nostalgia of past incentives, or use this as a launching point toward a more sustainable fiscal strategy.

PMK 136/2024 affirms that tax incentives can no longer be the primary crutch. In the era of the global minimum tax, competitiveness will be defined by legal certainty, transparency, and the quality of the investment ecosystem.

Within this framework, today’s liminality is not the twilight of policy; it is the doorway to a new dawn in Indonesia’s tax regime. (ASP/KEN)

Disclaimer! This article is a personal opinion and does not reflect the policies of the institution where the author works.