As explained in the previous article, one form of tax allowance facility provided by the Indonesian government is a reduction in net income by 30% of the total investment.
The reduction in net income by 30% can be given to 2 things, namely tangible fixed assets including land, and tangible fixed assets other than land. This article will describe the provisions on fixed assets including land which can be given a 30% net income reduction facility.
In general, provisions relating to fixed assets including land that can be granted a 30% reduction in net income facility are regulated through 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 rule in question is the Minister of Finance Regulation No. 96/PMK.010/2020 concerning Amendments to the Regulation of the Minister of Finance No. 11/PMK.010/2020 concerning the Implementation of Government Regulation No. 78 of 2019 concerning Income Tax Facilities for Investment in Certain Business Fields and/or in Certain Regions ( PMK 96/2020 ).
Tangible fixed assets including land can be defined as tangible fixed assets that are used for the main business activities and/or main support that is directly related to the main business activities in question. This definition is stated in the explanation of Article 4 paragraph (1) of PMK 96/2020.
It should be understood that not all tangible fixed assets, including land, can receive a tax allowance facility. In this context, based on Article 4 paragraph (1) of PP 78/2019, 3 provisions must be considered to determine the value of tangible fixed assets that can obtain a net income reduction facility of 30%.
First, tangible fixed assets including land are obtained by corporate taxpayers in new conditions. There are exceptions to this provision, namely for tangible fixed assets originating from the overall relocation of an investment package from another country.
Second, tangible fixed assets including land are listed in principle permits, investment permits, investment registrations, or investment permits. As for principle permits, investment permits, and investment registrations, they can be issued by the Investment Coordinating Board (BKPM) or the Regency/City Investment and One-Stop Integrated Service (DPMPTSP). Meanwhile, business licenses are issued by an online single submission (OSS) institution which is the basis for providing facilities.
Third, tangible fixed assets including land owned and used for main business activities. Referring to Article 4 paragraph (3) of PMK 96/2020, tangible fixed assets used for the main business activities also include the main supporting tangible fixed assets that are directly related to the business activities in question.
Meanwhile, the 30% net income reduction facility cannot be granted to tangible fixed assets obtained through operating leases or finance leases before the option rights on the assets are exercised. These provisions are as regulated in Article 4 paragraph (4) of PMK 96/2020.
As additional information, option rights in a lease can be understood as the right owned by the lessee ( less ) at the end of the contract period to purchase or extend the leased object based on the agreed residual value. The definition of the options right can be found in Article 1 letter o of the Decree of the Minister of Finance No. 1169/KMK.01/1991 concerning Lease Activities ( KMK 1169/1991 ).
This is a description of the provisions on fixed assets including land that can be given a tax allowance. The next tax class article will describe the provisions on fixed assets other than land that can get a tax allowance.