Examining SOE Restructuring Trends Through Tax Lenses

When hundreds of state-owned entities operate with varying levels of performance, with most of them recording losses, the question is no longer whether restructuring is necessary, but rather which scheme is the most rational and sustainable to implement. 

This year, Badan Pengelola Investasi Daya Anagata Nusantara (BPI Danantara) publicly stated the plan to significantly streamline SOEs’ portfolio. From more than 1,000 entities, the number is expected to be reduced to around 200–240 companies. The objective is clear: to create more focused, efficient, and globally competitive SOEs. 

This move is understandable. Nearly half of SOEs are reported to be loss-making, partly due to poor business decisions in the past, and partly because their business models are no longer aligned with market dynamics. 

Aside from that, the issue of internal cannibalization has also worsened the group’s performance. In the aviation sector, for example, competition exists among SOEs. For instance, Garuda Indonesia, Citilink, and Pelita Air often cannibalize each other’s market share. 

Divestment as a Frequent Shortcut 

In this context, an SOE restructuring is unavoidable. However, it is important to note that restructuring schemes are not a one-size-fits-all scenario. To date, one of the options most frequently chosen by the government has been divestment, namely the partial or full disposal of state ownership in an entity. 

Indonesia has a long track record with this policy. The divestment of PT Indosat shares in 2002 remains one of the most prominent examples, followed by various SOE share disposals through Initial Public Offerings (IPOs). A similar approach now appears to be under consideration again, including plans to divest several Pertamina subsidiaries, such as PT Pertamina Bina Medika IHC, Pelita Air Service, and PT Patra Jasa. 

Divestment does offer a quick way to improve financial structures. However, the effectiveness heavily depends on the business context and the long-term objectives of the state as the owner of strategic assets. 

Merger and Acquisition as an Alternative 

In practice, restructuring should not stop at divestment. Another equally relevant option is merger and acquisition (M&A), particularly for SOE subsidiaries that are fundamentally sound and profitable but have overlapping business activities. 

Through mergers, companies can consolidate assets, integrate expertise, and achieve a more efficient economies of scale without losing state control over strategic sectors. Beyond mergers, full consolidation or spin-offs may also be considered, depending on the characteristics and requirements of each sector. 

Tax Considerations: Use of Book Value 

Despite the efficiency possibility, mergers and other forms of restructuring cannot be separated from the tax consequences. Under the Indonesian tax regime, mergers are generally treated as asset transfers valued at market price. Consequently, the difference between the book value and the market value of the assets is subject to income tax. 

For companies undertaking large-scale restructuring, this tax burden can become a serious disincentive to cash flow. To address this issue, the government through Ministry of Finance Regulation (PMK) Number 81 of 2024 has provided the option to use book value in business restructuring. This facility allows asset transfers to be carried out at historical values so that no tax arises on valuation differences. However, the facility is not unconditional. 

First, companies must submit an application to the Directorate General of Taxes and clearly explain the rationale and objectives of the corporate action. The tax authority seeks to ensure that mergers are driven by actual business considerations rather than merely tax avoidance. 

Second, companies must perform a business purpose test. The merger must be aimed at strengthening business structures, improving efficiency, or expanding markets. If the primary motivation is merely to obtain tax benefits, the use of book value may be rejected. 

Third, companies must meet the requirements for a Tax Clearance Certificate (Surat Keterangan Fiskal/SKF) as an indicator of adequate tax compliance. 

Early Planning as the Key 

In practice, the greatest challenges often lie in timing readiness and document completeness. Although applications to use book value may be submitted up to six months after the effective date of the merger, all preparations should ideally be completed well before the transaction takes place. 

Accordingly, tax considerations should be incorporated from the early stages of drafting the merger plan. In fact, conducting tax due diligence prior to restructuring is a critical step to map risks and ensure compliance. 

The due diligence is also important for anticipating commonly overlooked provisions, such as the prohibition on transferring assets by the surviving entity for at least two years after the effective date of the merger or acquisition. Violation of this rule may transform the substance of the restructuring into an ordinary commercial transaction. 

The consequences are serious. Approval for the use of book value may be revoked, taxes are recalculated based on market value, and the company must bear significant tax liabilities along with administrative sanctions. 

Tax as the Key Driver of Success 

M&A is not merely a matter of legal structuring and financial calculation. Post-restructuring tax compliance is crucial in determining long-term success. Without proper planning, restructuring may create a “time bomb” in the form of future tax liabilities. 

This is where synergy between business strategy and tax compliance becomes imperative. A good restructuring is not only efficient on paper, but also fiscally robust and sustainable for the national economy. (ASP) 
 

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