What Is Supertax Deduction?

Innovation, technology and the quality of human resources (HR) are prominent keys to increasing the competitiveness of a country’s economy. One of the measures to optimise these three factors is to encourage research and development (R&D).

In addition, improving HR competencies according to industry needs is essential. However, the improvement of these three factors requires the involvement of the private sector.

The government has, therefore, issued Government Regulation (Gov. Reg.) No.45 of 2019 which stipulates the granting of the supertax deduction incentive. As such, what exactly is a supertax deduction incentive?

Definition
In summary, the supertax deduction or super tax reduction incentive is an incentive given to taxpayers involved in implementing vocational education programs or conducting certain R&D according to regulations.

The granting of the supertax deduction incentive is stated in Gov. Reg. 45/2019. Broadly speaking, pursuant to Gov. Reg. 45/2019, the supertax deduction incentive is given for two scopes of activities, namely vocational and R&D activities.

The incentive is provided to encourage investments in labour-intensive industries, support job creation programs and absorption of Indonesian labour and encourage the involvement of the business world and the industrial world in the preparation of quality human resources.

In addition, this incentive is expected to increase competitiveness and encourage the role of the industrial world in carrying out R&D activities. In respect of the granting of the supertax deduction incentive, the government has issued two regulations as the basis for its implementation.

First, the Minister of Finance Regulation (MoF Reg.) No.128/PMK.010/2019 concerning the Granting of a Reduction in Gross Income for Externship, Internship and/or Apprenticeship in the Context of Fostering and Developing Certain Competency-Based Human Resources.

On the other hand, the implementing provisions of the supertax deduction incentive for R&D are outlined in MoF Reg. No.153/PMK.010/2020 concerning the Granting of Gross Income Reduction for Certain Research and Development Activities in Indonesia.

Vocational Supertax Deduction
Supertax deduction for vocational activities is a tax incentive granted to resident corporate taxpayers conducting externship, internship and/or apprenticeship programs in the context of fostering and developing certain competency-based human resources (Article 29B paragraph 1 Gov. Reg. 45/2019). Certain competencies refer to:

“Competencies to improve the quality of the workforce through strategic externship, internship and/or apprenticeship programs to achieve workforce effectiveness and efficiency as part of human resource investment and fulfil the manpower structure required by the business world and/or the industrial world.”

Pursuant to Article 2 paragraph (1) of MoF Reg. 128/2019, the incentive may be given to taxpayers in the form of a reduction in gross income of a maximum of 200% (two hundred percent) of the total costs incurred for externship, internship and/or apprenticeship.

The 200% reduction in gross income includes two things. First, a 100% reduction of the total costs incurred for externship, internship and/or apprenticeship.

Second, an additional reduction in gross income of a maximum of 100% of the total costs incurred for externship, internship and/or apprenticeship. The additional 100% gross income deduction is only provided if the taxpayers fulfil the requirements.

However, to receive this incentive, taxpayers must fulfil the provisions under MoF Reg. 128/2019. Further provisions on the granting and methods for the application for the supertax deduction incentive can be seen in MoF Reg. 128/2019.

Supertax Deduction R&D
Supertax deduction for R&D activities is an incentive given to resident corporate taxpayers conducting certain research and development activities in Indonesia (Article 29C paragraph 1 of Gov. Reg. 45/2019; Article 2 paragraph 1 of MoF Reg. 153/2020).

Research refers to an activity carried out according to scientific methods to obtain data and information related to the understanding of natural and/or social phenomena, evidencing the accuracy or inaccuracy of an assumption and/or hypothesis and drawing scientific conclusions.

Development, on the other hand, refers to an activity to increase the benefits and supporting capacity of science and technology that has been proven correct and safe to increase the functions and benefits of science and technology.

The incentive is granted in the form of a reduction in gross income of a maximum of 300% of the total costs incurred for certain R&D in Indonesia expensed within a certain period.

The reduction in gross income provided for R&D activities includes two things. First, a 100% reduction in gross income from the total costs incurred for R&D activities.

Second, an additional reduction in gross income of a maximum of 200% of the accumulated costs incurred for R&D activities within a certain period.

In further detail, the additional reduction in gross income of a maximum of 200% is calculated as follows

• 50% if R&D results in intellectual property rights in the form of patents or plant variety protection rights registered at the domestic patent office or plant variety protection office;
• 25% if R&D results in intellectual property rights in the form of patents or plant variety protection rights which, in addition to being registered at the domestic patent office or plant variety protection office are also registered at the patent office or plant variety protection office overseas;
• 100% if if R&D reaches the commercialisation stage; and/or
• 25% if the R&D that results in intellectual property rights in the form of patents or plant variety protection rights and/or reaches the commercialisation stage is carried out in collaboration with the government’s R&D institutions and/or higher education institutions in Indonesia.

However, to be able to obtain this incentive, taxpayers must fulfil the provisions stipulated under MoF Reg. 153/2020. Further discussions on the provisions and procedures for the application for the supertax deduction for R&D can also be seen via the following link.