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)