Lower taxes may help Indonesia compete with regional rivals like Vietnam and Thailand in luring companies seeking to relocate businesses from China as it spars with the US on trade.
Wednesday 04, September 2019
Stand first Indonesia plans to cut tax on corporates and scrap a levy on dividend to make companies in Southeast Asia’s largest economy draw more foreign investment amid a global slowdown, reported Bloomberg.
Sri Mulyani Indrawati, the Indonesian Finance Minister, said that the corporate tax will be gradually lowered to 20 per cent starting 2021 from 25 per cent now and companies listing their shares may be subjected to a lower rate of 17 per cent for a period of five years.
The government will overhaul laws related to value-added tax, income tax and general taxation, said Indrawati.
President Joko Widodo pledged to slash taxes and overhaul labour laws to draw billions of dollars in foreign investment to bolster growth that slowed to 5.05 per cent in the second quarter, its slowest pace in two years.
“We will continue to focus our tax policy to be in line with international best practises, we have calculated the possible impact on budget and tax changes will be managed to not put it under too much pressure,” said Indrawati.
The tax on dividend earned by local and foreign investors will be eliminated if it’s reinvested, Indrawati said. The revised regulations will also cover tax breaks extended to various sectors, she said, adding that individuals—foreign or domestic—will be required to pay taxes only if their stay exceeded 183 days.
The government will also slash the penalty on taxpayers who correct their returns after filing and owe money to the exchequer, the minister said. The changes to the tax laws will require parliament approval and as the president is has said, it will be a priority in his second tenure starting next month.
With Indonesia’s internet economy forecast to swell to $100 billion by 2025, the tax rules will be amended to require foreign companies such as Google and Amazon.com to pay corporate tax and collect, report and submit value-added tax, Indrawati said.
The move is expected to ensure a level-playing field for the global digital players with the local firms.