Implications of Changing Provisions on Depreciation under the HPP Law

Question:
Allow me to introduce myself, I’m Sonia. I’d like to thank you in advance for the consultation session related to the Harmonisation of Tax Regulations Law. I would like to inquire about depreciation to calculate Income Tax.

Under the Harmonisation of Tax Regulations Law, the provisions on the delegation of MoF Reg. that stipulates the depreciation of tangible assets in certain business sectors and the grouping of tangible assets for depreciation purposes have been deleted.

As such, does the categorisation of tangible assets for depreciation purposes use the provisions under the Harmonisation of Tax Regulations Law or still use the former? Next, can a particular company determine the categorisation and useful life of tangible assets independently? Thank you!

Answer:
Thank you Mrs. Sonia for your question. Evidently, Law Number 7 of 2021 concerning the Harmonisation of Tax Regulations contains changes to the provisions on the depreciation of tangible prices outlined under the Income Tax Law.

These provisions are regulated under Article 11 of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law. The following is a juxtaposition of the changes in the provisions under Article 11 paragraph (7) and paragraph (11) of the Income Tax Law and the Harmonisation of Tax Regulations Law.

Before the enactment of the Harmonisation of Tax Regulations Law, the provisions under Article 11 paragraph (7) of the Income Tax Law were regulated in further detail through the Minister of Finance Regulation Number 249/PMK.03/2008 concerning the Depreciation of Costs to Acquire Tangible Assets Held and Used in Certain Business Sectors (MoF Reg. 249/2008) as amended by the Minister of Finance Regulation Number 126/PMK.01/2012 (MoF Reg. 126 2012).

Conversely, the provisions under Article 11 paragraph (11) of the Income Tax Law are regulated in further detail through the Minister of Finance Regulation Number 96/PMK.03/2009 concerning Types of Assets Included in Non-Building Tangible Assets Groups for Depreciation Purposes (MoF Reg. 96/2009).

Based on the above juxtaposition, it can be seen that the delegation of the two MoF Regs. has been deleted. Further, the latest delegation rules are stipulated under Article 32C letters p and q of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law which reads as follows.

“Further provisions on:

1. groups of tangible assets, useful life and the calculation of depreciation as referred to in Article 11 paragraph (6) and paragraph (6a);
2. depreciation of tangible assets owned and used in certain business sectors as referred to in Article 11 paragraph (7);

shall be stipulated by or based on a Government Regulation.”

However, to date, we need to wait for a government regulation (Gov. Reg.) that stipulates the grouping of tangible assets and the depreciation of tangible assets as referred to above. Also, check out the article ‘The Director General of Taxes Claims that the Implementing Regulations of the Harmonisation of Tax Regulations Law Are Being Harmonised’.

In respect of Mrs. Sonia’s question, we can refer to the concluding provisions under Article 16 letter b of the Harmonisation of Tax Regulations Law which reads as follows.

“When this Law comes into force, all statutory provisions constituting implementing regulations of:

Law Number 7 of 1983 concerning Income Taxes (State Gazette of the Republic of Indonesia of 1983 Number 50, Supplement to the State Gazette of the Republic of Indonesia Number 3263) as amended several times, last amended by Law Number 36 of 2008 concerning the Fourth Amendment to Law Number 7 of 1983 concerning Income Taxes (State Gazette of the Republic of Indonesia of 2008 Number 133, Supplement to the State Gazette of the Republic of Indonesia Number 4893);

are declared to remain valid insofar as they do not contradict the provisions under this Law or have not been replaced pursuant to this Law.”

Pursuant to these provisions, currently, Mrs. Sonia may continue to refer to MoF Reg. 96/2009 in respect of the categorisation of tangible assets for depreciation purposes.

On the other hand, the depreciation on expenses to acquire tangible assets owned and used in certain business sectors may refer to MoF Reg. 249/2008 as amended by MoF Reg. 126/2012.

The phrase “regulated separately” outlined in Article 11 paragraph (7) of the Income Tax Law as amended by the Harmonisation of Tax Regulations Law cannot be interpreted as a certain company being able to independently determine the category/useful life/calculation of depreciation of tangible assets.

Based on the elucidation of the Harmonisation of Tax Regulations Law, to adjust to the characteristics of certain business sectors, such as perennials plantations, forestry and animal husbandry, “separate arrangements” are required for the depreciation of tangible assets.

We hope our answer satisfies your inquiries.

On a side note, the Harmonisation of Tax Regulations Law Consultation article is presented every Tuesday to answer questions related to the Harmonisation of Tax Regulations Law and the derivative regulations thereto submitted to the following email address, [email protected]. Feel free to email any questions to the aforementioned email address.