Concerning Pillar 2, Indonesia Will Not Rush to Revise Tax Incentives

JAKARTA, DDTCNews – The government will not rush to revise the tax incentive scheme considering that there is no resolution for the implementation of the global tax consensus, both Pillar 1: Unified Approach and Pillar 2: Global Anti-Base Erosion (GloBE).

Head of the Fiscal Policy Agency (BKF) Febrio Kacaribu claimed that numerous Inclusive Framework member states are of the opinion that Pillar 1 and Pillar 2 constitute a single unit. This implies that the two pillars cannot be implemented separately.

“It’s going to be strenuous. This year, it’s been unsuccessful. Pillar 1 and Pillar 2 are seen as integral matters by many countries. As such, the implementation should be simultaneous,” he stated, quoted on Wednesday (2/11/2022).

Thus, the global taxation consensus cannot be implemented if only one of the two pillars is agreed upon.

For this reason, continued Febrio, the government will not rush to revise the tax incentive scheme currently in force or impose a domestic minimum tax based on the provisions of the qualified domestic minimum top-up tax (QDMTT) in Pillar 2.

“We can’t rush things. We have to prepare everything well. It is part of coordination and negotiation. We will, by all means, prioritise domestic interests,” he said.

Febrio considers that the government constantly evaluates the applicable tax incentives to maintain the effectiveness of these incentives.

On another note, Pillar 2 will constitute the tax base of a global minimum tax at a rate of 15%. A minimum tax will be imposed on multinational companies with revenues above €750 million.

If the effective tax rate of multinational corporations in a jurisdiction does not reach 15%, the jurisdiction where the multinational corporations are based is entitled to impose a top-up tax. The top-up tax is imposed based on the income inclusion rule (IIR).

According to the OECD, the tax incentive that will be significantly impacted by the global minimum tax is the tax holiday.

Therefore, expenditure-based tax incentives, such as tax allowances and investment allowances need to be intensified considering that the impact of the global minimum tax on these types of incentives may be limited.

As a short-term solution, the OECD requires each jurisdiction to implement a domestic minimum tax or QDMTT to maintain the tax revenue base.

With QDMTT, income that is under-taxed due to incentives may be directly taxed before other countries impose a top-up tax on the income. (rig)