Tax Law Revision: Tax Amnesty, Corporate Minimum Tax and VAT Rate Increase

The Government has once again proposed a revision of taxation law through the omnibus scheme. Some of the proposed policy plans include re-implementing tax amnesty, raising Value Added Tax (VAT) rate, adding layers of Income Tax (PPh) rates for taxpayers with income above IDR5 billion, and the abolition of imprisonment. 

The policy plan is revealed in the draft document of the bill on the Taxation General Provisions and Procedures Law (KUP Bill), which has limited access. Although the title is KUP Bill, the amendments and additions to articles are factually more targeting the Income Tax and VAT Law. 

Tax Amnesty 

The plan for the implementation of the tax amnesty program is contained in at least nine new articles (Article 37B – Article 37I) in Income Tax Bill. The outline is that the tax amnesty will be held again, with a period of asset declaration and amnesty from 1 July 2021 to 31 December 2021.  

As for the tax amnesty redemption rate, the government in KUP Bill proposes two options. First, a redemption of 15% is imposed for all tax amnesty participants who disclose or declare their hidden assets. Second, the redemption rate could be lower, which is 12.5%, for tax amnesty participants who declare and repatriate their assets into the country. The terms of repatriation are regulated in the form of investment in the government bond market on 31 March 2022 at the latest, with a minimum deposit period of five years.  

If after the declaration or repatriation of assets, other assets that have not been reported are found, the taxpayers are threatened with sanctions in the form of imposition of a final income tax of 30% on the findings of the assets. Meanwhile, the assets that are not invested as promised or do not meet the investment requirements are subject to a final income tax of 5%. Otherwise, if, on their own initiative, the taxpayers report the finding of assets that have not been disclosed or repatriated, the final income tax rate imposed will be lower, i.e. only 3%.  

In addition, the government in the omnibus version of KUP Bill also provides space for asset declarations for taxpayers who do not participate in the tax amnesty program. In this case, the disclosed assets are considered additional incomes, which are subject to a final income tax rate of 30%. The final income tax rate will be lower, which is 20%, for the taxpayers who are committed to repatriating or investing their assets in Government Bonds (SBN). 

However, if after the disclosure of the assets or additional income, the DGT finds other assets that have not been reported, the taxpayers will be subject to a final income tax of 15% of the value of the new assets found. Yet, If the taxpayers, on their own initiative, disclose additional income and pay the income tax payable, the final income tax rate drops to 12.5%.  

The tax amnesty plan also contains the following terms and conditions: 

1. The taxpayers are not being subject to a tax audit, preliminary evidence audit, and/or tax crime investigation; 
2. The taxpayers are not in the judicial process for tax crimes; and/or 
3. The taxpayers are not currently serving a tax crime penalty. 

Abolition of Imprisonment 

Then, in Article 44C of the KUP bill draft, the government adds two new articles (39-39A), which essentially affirm that penalty in the form of fines cannot be replaced with imprisonment and must be paid by the convict. 

In the event that the convict does not pay the fine no later than one month after the court verdict with permanent legal force, the prosecutor will conduct the confiscation and auction of the convict's assets to pay the fine.  

Wealth Tax 

Further, the omnibus law also revises the provisions of Article 17 of Income Tax Law, by adding a new layer of taxable income, i.e. income above IDR5 billion a year will be subject to an income tax of 35%. 

Layers of Taxable Income	Current Rate	Proposal
< IDR50 million	5%	5%
> IDR50 million up to IDR250 million	15%	15%
> IDR250 million up to IDR500 million	25%	25%
> IDR500 million up to IDR5 billion	30%	30%
> IDR5 billion*	-	35%

Meanwhile, the income tax rate for corporate taxpayers and permanent establishments (BUT) is proposed to be reduced from 28% to 20%. The rate can be 3% lower if the taxpayers’ status is a Limited Liability Company (PT) whose at least 40% of shares are traded on the Indonesia stock exchange. The income tax discount is lower than the current 5% discount.  

Corporate	Current Rate	Proposal
Corporate Taxpayers & BUT	28%	20%
Tariff discount*                        (Limited Liability Company with 40% of its shares are traded)	5%	3%

Article 18 states that the Director General of Taxes is authorized to re-determine the amount of tax that should be payable, in the event that the taxpayers conduct one or cumulative transactions aimed at: (1) reducing; (2) avoiding; and/or (3) delaying tax payments.  

Not only that, the Minister of Finance is also authorized to set a limit on the amount of borrowing costs that can be charged for the purpose of calculating taxes. In this case, the following matters will be regulated through Minister of Finance Regulation (PMK):  

• Application of the Arm's Length Principle in calculating Taxable Income; 
• Implementation of the agreement to determine transaction prices between parties with a special relationship; 
• Determination of the actual party that purchases shares or assets through another party or a special purpose company; 
• Determination of the sale or transfer of shares of a corporate established or domiciled in Indonesia or a permanent establishment in Indonesia; 
• Re-determination of the amount of income earned by individual resident taxpayers from an employer who has a special relationship with another company that is not established nor domiciled in Indonesia; and 
• Special relationship criteria. 

Minimum Tax

Furthermore, the government inserts Article 31F in Income Tax Law to regulate the application of the minimum corporate tax. In this case, the application of the minimum tax is specifically for corporate taxpayers whose tax payable does not exceed 1% of gross income.  

The proposed minimum income tax rate is 1% of the tax base, which in this case is the company's gross income. However, the Minister of Finance has the right to determine the taxpayers of certain corporates that are exempted from the application of the minimum income tax. 

Further provisions regarding the minimum corporate tax will be regulated through Government Regulation (PP). 

VAT Rate Increase 

The provisions in VAT Law that will be revised include targeting Article 7, which regulates the rates. In this case, the government proposes an increase in the generally accepted VAT rate, from 10% to 12%. The rate can be changed from a minimum of 5% to a maximum of 15%. 

Apart from that, the government proposes the application of different rates for VAT of a minimum of 5% to a maximum of 25%. These different rates of VAT are intended for:

1. transfer of certain Taxable Goods (BKP) and/or Taxable Services (JKP)
2.  certain import of taxable goods; and
3.  utilization of certain intangible taxable goods and/or certain taxable services from outside the customs territory. 

Plastic Excise and Carbon Tax 

In addition, the KUP Omnibus Bill also inserts a number of clauses in the Excise Law. First, it is related to the discourse on the application of plastic excise.  

Second, it is regarding the plan to implement a carbon tax. The targets of the carbon tax are individuals and corporates that produce carbon emissions that have a negative impact on the environment.

The proposed carbon tax rate is at least IDR75 per kilogram of CO2 or its equivalent unit. 

  

Source: The Draft of KUP bill