HKPD Law Gives Local Governments Flexibility to Spread Tax Incentives

JAKARTA, DDTCNews – The Law concerning Financial Relations between the Central Government and Local Governments (Hubungan Keuangan Antara Pemerintah Pusat dan Pemerintahan Daerah, hereinafter referred to as HKPD) provides flexibility to local governments in providing tax incentives and charges.

Article 101 paragraph (1) of the HKPD Law states that governors, mayors, and regents may grant fiscal incentives to entrepreneurs to support the policies of ease of investment in their respective regions.

“Fiscal incentives referred to in paragraph (1) are in the form of deduction, relief and exemptions or nullification of tax principal, charge principal and/or penalties,” reads Article 101 paragraph (2) of the HKPD Law, quoted on Friday (10/12/2021).

Fiscal incentives from regional heads may be granted based on taxpayers’ applications or granted ex officio by regional heads based on various factors that are taken into consideration.

Some aspects that need to be considered include the taxpayers’ ability to pay, certain conditions of taxable objects, to support micro and ultra-micro enterprises, to support the achievement of regional priority programs and national priority programs of the central government.

Fiscal incentives for taxpayers may be determined by regional heads through regional head regulations after notifying the plan to grant such incentives to the Regional Legislative Council.

“Further provisions on procedures for the granting of fiscal incentives referred to in paragraph (2) are regulated by or based on a Government Regulation,” reads Article 101 paragraph (6) of the HKPD Law.

On a side note, similar provisions have been outlined under Article 114 of Law 11/2020 concerning Job Creation which amends Law 28/2009 on Local Taxes and Local Charges (Pajak Daerah dan Retribusi Daerah, hereinafter referred to as PDRD).

Under Article 156B of the PDRD Law added through the Job Creation Law, regional heads are authorised to establish regional head regulations on the granting of fiscal incentives.

“Fiscal incentives ... may be granted based on taxpayers’ applications or granted ex officio by the regional head based on rational considerations,” reads Article 156B paragraph (3) of the PDRD Law as amended by the Job Creation Law. (sap)