The government is to offer corporate tax discounts in a revised tax holiday regulation, aiming to attract more investors and boost economic growth.
Finance Minister Bambang Brodjonegoro said he expected that the government's tax holiday regulation (which gives tax breaks for five to 10 years for companies investing at least Rp 1 trillion in certain sectors) would be revised in July.
The revised tax holiday regulation would allow corporate tax discounts from 20 to 100 percent, as well as extending the length of the breaks and discounts to 15 - 20 years from 5 - 10 years previously, the minister said.
The sectors included in the policy would also be broadened, but the minimum investment required would remain Rp 1 trillion, added Bambang, who is responsible for the finance minister regulation on the matter.
"We want to make (the tax holiday) more attractive for investors," he told The Jakarta Post in a recent interview. "We will still prioritize downstream sectors, basic industries, iron and steel, petrochemical, refineries, agriculture and forestry. We want to direct this measure to industries that use resources that we own, not import."
Halfway through the year, the government is racing against time to launch a number of fiscal stimuli that include the expanded tax holiday, higher taxable income, fiscal incentives for special economic zones (KEK) and a tax amnesty for financial crimes, as growth shrank to 4.7 percent in the first quarter, a level unseen since 2009.
President Joko "Jokowi" Widodo wants the economy to grow 7 percent per year by the time his term ends in 2019, with investment in infrastructure seen as crucial to this goal. Investment, which accounts for a third of the country's economy, is expected to grow 12 percent this year, according to the Investment Coordinating Board (BKPM).
Investors who had previously applied for the tax holiday but were ineligible were, said Bambang, encouraged to reapply.
The government also offers a tax allowance measure that cuts taxable income to 30 percent of total investment realized over six years, accelerates depreciation and amortization, charges tax of up to 10 percent on offshore taxpayers and carries forward losses from five to 10 years.
"We don't want tax holiday [applications] to concern tax allowances. The tax holiday will remain limited," Bambang added.
However, investors remain unsure of the financial benefits of the policy relative to the lengthy administrative procedures involved.
"A tax holiday is just a dessert. Without it, businesses can still eat," said Yustinus Prastowo, an executive director at the Center for Indonesia Taxation Analysis (CITA), citing a survey placing taxation as investors' sixth biggest concern.
"It's ineffective to maintain a tax holiday as an incentive model," said the former member of the Tax Revenues Optimization Team (TOPP), citing legal certainty, political stability and low logistics costs as more concrete incentives for investors.
BKPM deputy head Azhar Lubis said the board welcomed the Finance Ministry's plan and would work to ensure that the revision covers priority sectors that "employ large numbers, strengthen the structure of the economy, support exports, substitute imports, downstream mineral products, boost fisheries and agriculture and make contributions, especially outside Java".