New tax incentive issued to stimulate asset revaluation

JAKARTA (JP): Minister of Finance Mar'ie Muhammad yesterday cut the income tax rate on capital gains resulting from the revaluation of corporate assets to a flat rate of 10 percent.

The minister said that the new tax incentive is essential in order to stimulate companies into going public and to make the book values of listed firms and state-owned enterprises more realistic.

"The Minister of Finance is allowed by the existing tax laws to set a special income tax rate on capital gains generated by asset revaluation," he told a press briefing.

Capital gains obtained from asset revaluation was previously regarded as part of the income that should be accounted for in companies' annual tax returns. The capital gains, therefore, were subject to income tax, at one of the three normal rates.

The tax rate on an annual income of up to Rp 25 million is 10 percent, on an income from Rp 25 million to Rp 50 million, 15 percent and for incomes above Rp 50 million, 30 percent.

Mar'ie said that the 10 percent income tax, under the new tax regulation, should be paid immediately upon the revaluation of assets and that the gains resulted from the revaluation need not be stated in the annual tax returns.

Income-tax returns have to be filed by March 31 each year.

The minister said that all companies incorporated in Indonesia are allowed to revalue their assets as long as they have met all their tax obligations in the current fiscal year.

According to the requirements set by the new ruling, assets that will be revalued should be in the form of fixed assets such as land and buildings. The assets should have been in a company's possession for at least five years and the aim of the revaluation should not be to sell the assets.

Mar'ie said that the revaluation should be based on the current market prices and should be carried out by registered appraisal companies.

The minister said that the 10 percent income tax is imposed on the capital gains. However, carried-over losses can first be deducted from the taxable capital gains.

"If companies suffer no losses or do not carry over any losses from previous years, they have to pay the 10 percent tax on all the gains they make from the asset revaluation," he said in the press briefing, which was also attended by Tax Director General Fuad Bawazier, Director General for State Enterprises Bacelius Ruru and Capital Market Supervisory Agency (Bapepam) Chairman I Gede Ary Putu Suta.

Mar'ie, however, warned that companies which sell their land or buildings less than five years after their revaluation or less than three years for other fixed assets, will have to pay an additional income tax of 15 percent.

"The additional tax, which shall be paid on top of the final 10 percent income tax, is imposed to prevent tax evasion," he noted.

He said the new tax facility is meant to encourage companies to adjust their assets to the current market prices and not to increase the government's tax receipts.

"It is, therefore, optional and it is up to them whether or not they revalue their assets," the minister added.

Tax Director General Fuad said that the values of assets, such as lands and buildings, of most old companies established during the colonial era are no longer realistic because they are mostly calculated using an outdated method.

Director General for State Enterprises Ruru said most state- owned companies also currently value their assets at historical levels.

He said that many state firms have revalued their assets as part of their restructuring programs but could not account for the capital gains from the revaluation in their balance sheets due to tax constraints.

"We hope the new tax incentive will encourage them to reevaluate their assets so that the value of their assets would reflect market prices," he said.

Bapepam Chairman Putu said that the new tax facility gives publicly-listed companies the opportunity to adjust the value of their assets, which are still based on their historical value.

"But for companies wanting to go public, the tax facility is much more important," he said, adding that the high tax burden previously imposed on the capital gains from asset revaluation often discouraged companies from making initial public offerings.(hen)