New tax laws will benefit East Indonesia

New tax laws will benefit East Indonesia

JAKARTA (JP): The new tax laws to be enforced in January
will allow investors operating in eastern parts of Indonesia to
carry forward losses for up to 10 years.

The loss carry forward is part of the tax benefits for
investors operating in frontier areas or in priority business
fields as stipulated in one of the 28 implementation rulings of
the new tax laws issued on Wednesday.

The other tax incentives include acceleration in asset
depreciation, the reduction of the 20 percent withholding tax on
after-tax profits of permanent establishments in Indonesia.

Tax Director General Fuad Bawazier said during the
announcement of the implementation rulings that the introduction
of the tax benefits is in line with the government's policy to
speed up development in isolated areas and priority business
fields and to support export-oriented industries.

Fuad said that the new tax laws also allow investors engaged
in hard crop plantations and mining activities outside the
frontier areas to carry forward losses for up to eight years.

The new tax laws, the amended version of the present laws on
income tax, property tax, value added tax and luxury sales tax,
were ratified by the House of Representatives in October.

The 28 rulings are part of around 100 implementation
regulations to be issued by the government to ensure the fair
application and clarification of the new tax laws. Nine of the
implementation regulations were issued by the President, while
the remaining 19 were issued by Minister of Finance.

Fuad said that the implementation regulations could be also
in the form of circular letters from his office.

Reports

One of the 29 rulings stipulate that foreign-joint venture
companies operating under working contracts, production-sharing
contracts or other schemes of operational arrangements are
allowed to keep their financial reports in English and to use
U.S. dollar denominations upon approval from the Minister of
Finance.

Transactions in rupiah or other currencies should be
converted into U.S. dollar under Bank Indonesia's conversion
rates. The balance sheet and income statements should be made in
English with both U.S. dollar and rupiah denominations, the
ruling stipulates.

Representatives or officials of foreign organizations,
according to one of the rulings, are not subject to income tax as
long as they do not make businesses in fields other than those
stipulated in the agreements with the Indonesian government.

In addition to the obligation to pay income tax as
stipulated in article 17 of the income tax law, individuals are
also subjected to a 15 percent final tax pension benefit with
pension funds, old-age funds and savings from social insurance
companies, with prizes or awards.

The new tax laws also replace the tax collection on stock
trading activities with a final tax of 0.1 percent of the gross
transaction.

The present capital market tax is based on capital gains,
with tariffs of 15, 25 and 35 percent, depending on the amount of
gains.

The most significant factor of the new tax laws is the
reduction in the income tax rate of both individuals and
companies to 10 percent for annual earnings of between Rp 10
million (US$4,650) to Rp 25 million, to 20 percent of an income
over Rp 25 million to Rp 50 million and 30 percent for incomes
over Rp 50 million.

The implementation regulations of the tax laws issued on
Wednesday, however, do not cover the income tax rates.

The present tax income rates are 15 percent for an income of
Rp 10 million and less, 15 percent for the income between Rp 10
million to Rp 50 million and 35 percent for an income of Rp 50
million or more.(hen)