Economist: Tax holiday revision should focus on performance-based incentives

Jakarta (ANTARA) - Economist from the Center of Reform on Economics (CORE) Yusuf Rendy Manilet believes that the revision of the fiscal policy in the form of corporate tax exemption or tax holiday should focus on performance-based incentives. “This revision will be felt if it truly changes the design, from rate-based incentives to performance-based incentives,” said Yusuf when contacted by ANTARA in Jakarta on Monday. According to Yusuf, the tax holiday revision needs to adjust to the implementation of the Global Minimum Tax or OECD Pillar Two. With the provision of a minimum effective rate of 15 percent, the low rate-based incentive scheme is considered increasingly ineffective. He explained that if a company obtains a lower tax rate in Indonesia, the difference could still be collected by the home country through the top-up tax mechanism. This situation means that the benefits of the incentive are not fully enjoyed by investors, while Indonesia also risks losing part of its potential revenue. On the other hand, several countries such as Vietnam and India are starting to adjust their incentive schemes to align with global tax rules. If Indonesia sticks with the old model, national competitiveness is feared to lag behind, especially in strategic sectors like electric vehicles, petrochemicals, and mineral supply chains. “Therefore, in my view, the direction of the revision should shift. Not cutting rates anymore, but providing activity-based incentives,” he added. Several forms of incentives considered more relevant include tax credits for research and development, workforce training, and industrial downstreaming. Instruments such as refundable tax credits or combinations with domestic minimum top-up tax are also seen as more suitable for current needs. This approach is considered capable of maintaining investment attractiveness while encouraging business activities that have a real impact on the domestic economy. Previously, the Directorate General of Taxation (DJP) of the Ministry of Finance stated that the tax holiday revision has entered the final stage after going through inter-ministerial discussions. The revision aims to strengthen investment attractiveness in Indonesia.