Indonesia's new tax regime

VALUE ADDED TAX HIKE

The VAT rate will be raised from 10 per cent now to 11 per cent by next April - and to 12 per cent by 2025.

The law removes some exemptions on staple foods, healthcare and education services. But officials have said exemptions will remain for most basic necessities and VAT will be charged only on premium goods, such as wagyu beef or services for cosmetic purposes.

TAX HIKE FOR THE RICH, TAX CUT FOR THE MASSES

The threshold for taxable income that gets a 5 per cent rate is raised to 60 million rupiah (S$5,735) per year from 50 million rupiah. This is effectively a cut for all taxpayers.

But there is a new 35 per cent rate for the over 5 billion rupiah income band. This will affect less than 1 per cent of taxpayers, says officials.

CORPORATE TAX CUT CANCELLED

The law overturns last year's legislation that mandated the corporate tax be cut to 20 per cent, from 22 per cent. That means next year's rate will be unchanged.

But lawmakers did not approve the government's proposal for a minimum corporate tax for firms that have reported losses for years and are suspected of tax avoidance.

SECOND TAX AMNESTY PROGRAMME

Another controversial provision is a voluntary disclosure programme that will run from Jan 1 to June 30 next year, as an extension of the 2016-2017 tax amnesty scheme.

The new programme will allow previous participants to disclose unreported assets acquired before 2016. The authorities will regard the assets as additional income and charge a tax rate from 6 per cent to 11 per cent of the asset value.

Taxpayers reporting hidden assets between 2016 and 2020 can pay 12 per cent to 18 per cent tax on them.

CARBON TAX FOR INDIVIDUALS AND COMPANIES

The law introduces a carbon tax that will be imposed on individuals and companies buying goods containing carbon or conducting activities that emit carbon.

The tax rate will be determined by carbon market prices, with a floor rate of 30 rupiah per kilogram of carbon dioxide equivalent.

From next April, companies that operate coal-fired power plants will have to pay the carbon tax at the floor rate.

Under the new law, the government is also mandated to come up with a road map to set up carbon trading by 2025 and a clear strategy to reduce Indonesia's greenhouse gas emissions.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 08, 2021, with the headline 'Indonesia's new tax regime'. Subscribe