Requirements and Criteria to Obtain Tax Allowances

JAKARTA, DDTCNews - Basically, tax allowance incentives are granted to increase investment and economic growth as well as equitable development through acceleration in certain business sectors/regions. To take advantage of these incentives, corporate taxpayers must fulfil certain requirements and criteria.

The requirements and criteria to be eligible for tax allowances are stipulated under Government Regulation No. 78 of 2019 concerning Income Tax Incentives for Investments in Certain Business Sectors and/or Certain Regions (Gov. Reg. 78/2019) and the derivative regulations thereto.

The said derivative regulation is the Minister of Industry Regulation No. 47 of 2019 concerning Criteria and/or Requirements in the Context of Obtaining Income Tax Incentives for Investments in Certain Business Sectors and/or Certain Regions in the Industrial Sector (Permenperin 47/2019).

Referring to Article 2 paragraph (1) of Gov. Reg. 78/2019, the tax allowance incentives may only be given to resident corporate taxpayers investing in the main business, both new investments and spin-offs of existing businesses.

However, the replacement and/or addition of machinery and/or equipment carried out in a production line that is already in commercial production does not fall into the category of the spin-off of an existing business.

The tax allowance incentives are given to certain business sectors and certain business sectors in certain regions stated in Appendix I of Gov. Reg. 78/2019 and Appendix II of Gov. Reg. 78/2019.

The determination of certain business sectors and certain regions considers the priority of sector development to establish a comprehensive economic ecosystem. This is outlined in the elucidation of Gov. Reg. 78/2019.

In general, referring to the appendix of Gov. Reg. 78/2019, currently, 166 certain business sectors and 17 specific business sectors located in certain regions may apply for tax allowance incentives.

Further, pursuant to Article 2 paragraph (3) of Gov. Reg. 78/2019, resident corporate taxpayers that perform investments may be given tax allowance incentives if they fulfil one of the 3 criteria as follows. First, having a high investment value or for export. Second, having large labour absorption. Third, having high local content.

Provisions on the value of investments, the amount of labour absorption as well as the local content are outlined in the Minister of Industry Reg. 47/2019. On a side note, the value of investments, labour absorption as well as local content are determined differently based on the business sector and the Indonesian Business Classification (KBLI).

For example, for the organic waste compost production business sector with KBLI 38212. Based on Appendix I of the Minister of Industry Reg. 47/2019, to obtain tax allowances, corporate taxpayers must fulfil the following 3 alternative criteria.

The said criteria include investing IDR15 billion, absorbing 50 or more workers or having a local content of 20% or more.

Next, another example is the coffee processing industry with KBLI 10761. According to II of the Minister of Industry Reg. 47/2019, to obtain tax allowances, corporate taxpayers must fulfil one of the following 3 criteria.

First, investing IDR50 billion or more for instant coffee or IDR35 billion or more for ground coffee, coffee sangria, coffee extract and coffee essence. Second, absorbing 50 or more workers. Third, having a local content of 20%.

Thus concludes the discussion of the requirements and criteria to obtain tax allowances in Indonesia. Follow the next tax class article that will review the procedures for the application for tax allowances through the online single submission (OSS) system. (zaka/kaw)