Tax allowance incentives are given to increase investment and economic growth as well as equitable development through acceleration in certain business fields/regions. To take advantage of this facility, corporate taxpayers must meet certain conditions and criteria that have been set.
The terms and criteria for obtaining a tax allowance are regulated in Government Regulation no. 78 of 2019 concerning Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions ( PP 78/2019 ) and its derivatives rules.
The derivative rules in question are Minister of Industry Regulation No. 47 of 2019 concerning Criteria and/or Requirements for Obtaining Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions in the Industrial Sector (Permenperin 47/2019).
Referring to Article 2 paragraph (1) PP 78/2019, the tax allowance facility can only be given to domestic corporate taxpayers who invest in main business activities, both new investment, and expansion of existing businesses.
However, the replacement and/or addition of machines and/or equipment carried out in a production line that is already in commercial production is not included in the category of expansion of an existing business.
The tax allowance incentives are given to certain business fields and certain business fields located in certain areas as listed in Appendix I of PP 78/2019 and Appendix II of PP 78/2019 .
The determination of certain business fields and certain regions takes into account the priority of sector development to create a comprehensive economic ecosystem. This is as described in the explanation of PP 78/2019.
In general, referring to the attachment to PP 78/2019, currently, there are 166 certain business fields and 17 certain business fields that are located in certain areas that can apply for the tax allowance facility.
Furthermore, based on Article 2 paragraph (3) of PP 78/2019, domestic corporate taxpayers who make investments can be given tax allowance facilities if they meet one of the following 3 criteria. First, having a high investment value or for export. Second, it has a large employment absorption. Third, it has a high local content.
The provisions regarding the investment value, the amount of labor absorption, as well as local content, are contained in Permenperin 47/2019. For information, the investment value, employment, as well as local content are determined differently based on the line of business and the Indonesian Standard Classification of Business Fields (KBLI).
For example, for the business field of organic waste compost production with KBLI 38212. Based on Attachment I to Permenperin 47/2019, to obtain a tax allowance, corporate taxpayers must meet the following 3 alternative criteria.
The criteria in question are investing IDR 15 billion, absorbing 50 workers or more, or having local content of 20% or more.
Then, another example is the coffee processing industry with KBLI 10761. By Attachment II to Permenperin 47/2019, to obtain a tax allowance, corporate taxpayers must meet one of the following 3 criteria.
First, invest IDR 50 billion or more for instant coffee or IDR 35 billion or more for ground coffee, coffee sangria, coffee extract, and coffee extract. Second, to absorb a workforce of 50 people or more. Third, it has a local content of 20%.
This is a discussion of the terms and criteria for obtaining a tax allowance in Indonesia. Follow the next tax class article which will review the procedure for submitting a tax allowance application through the online single submission (OSS) system.