LEGAL UPDATES BY BEPARTNERS
 
Corporate, Banking & Finance
Indonesia Covid-19 :

THE ECONOMIC SURVIVAL KIT FOR INDONESIAN BUSINESS PLAYERS

07 April 2020
 
The pandemic of the coronavirus disease (“COVID-19”) has continually caused turbulence to the global economy. Among one of the affected countries, the COVID-19 is predicted to seriously slow down the Indonesia’s economic growth, where the initial projected number of 5.1% in 2020 will be impossible to reach. According to the Ministry of Finance, at its best, Indonesia’s economic growth may only reach 2.3%, while in the most severe scenario this number may fall to -0.4%. Following the fall of the global commodity price and financial market turmoil, to date, COVID-19 has continuously slow down domestic economic activities. This current situation has triggered a domino effect where there has been the continuing weakening of Indonesian Rupiah against the US Dollar and the fall of IDX Composite. As of the beginning of April, the IDX Composite has dropped around 26% from its initial trading price on early January 2020.  
 
 
There is still no certainty on when the spread of COVID-19 will end. To mitigate the possible impact of economic system downfall, the Indonesian Government, following the steps of other COVID-19 affected countries, has taken an anticipative measure by issuing an umbrella regulation for economic stimulus packages during the COVID-19 pandemic. On 31 March 2020, the Indonesian Government has officially issued Government Regulation in Lieu of Law regarding State Finance Policy and Financial System Stability in the handling of COVID-19 and/or in response to dangerous threats to the national economy and/or the stability of the financial system (“Perppu 1/2020”).
 
 
For the actual implementation of the Perppu 1/2020, the Government has issued several policies relating to fiscal, non-fiscal and financial sectors that are expected to repress the damaging impact of COVID-19 towards the domestic economy. The following are key points of policies that have been issued up to April 2020.
 

1. FISCAL STIMULUS PACKAGE AND NEW DIGITAL BUSINESS TAX SCHEME
 
1.1. Fiscal Stimulus Package
The fiscal stimulus package aims to support both individual and business taxpayers in certain industries with several key tax relaxations, the Government expects the fiscal stimulus to help taxpayers in maintaining purchasing power and cash flow.
 
 
For individual taxpayers, incentive to Income Tax Article 21 is intended to maintain purchasing power of the low to medium income employee during the COVID-19. While, the Income Tax Article 21 will be fully borne by the Government, the employer shall pay the relevant employees’ salary in full amount without tax deduction. In addition, for employers to obtain the incentive, they shall submit a notification for the application of incentive for Income Tax Article 21 to the relevant Tax Office. As for businesses, in particular companies from 440 manufacturing sectors, 102 certain sectors and companies that have been registered and are entitled to Ease of Importing for Export Purposes facility (Kemudahan Impor Tujuan Ekspor “KITE”), the fiscal stimulus is intended to maintain taxpayers’ cash flow by providing leniency in income tax as well as acceleration of VAT refund, in addition to also provide ease in doing business during the pandemic of COVID-19.
 
 
Please see table below for the summary of fiscal stimulus package.
 
 
1.2. Newly Issued Taxation Scheme for Digital Business
On the other side, due to the increase in domestic digital utilization as a result of mobility and social restriction, the Government has seen such as an opportunity to further add to the state revenue. In response to this condition, there has been the issuance of Perppu 1/2020, where now digital businesses are subject to the following taxes:
i. Income Tax: E-commerce operators who meet the following conditions are subject to Indonesian Income Tax regulations:
• Having a certain amount of gross consolidation circulation of group companies;
• Having a certain amount of sales in Indonesia; and/or
• Having a certain digital media active users in Indonesia.
 
E-commerce operators who meet the above conditions are considered to have a significant presence in Indonesia and can be considered as a permanent establishment.
 
ii. Electronic Transaction Tax: For e-commerce operators with significant presence in Indonesia but not be able to be taxed under Indonesian Income Tax regulations due to tax treaties, will be subject to electronic transaction tax for any sale of goods or services from outside Indonesia to Indonesian customers.
 
iii. VAT: Domestic or overseas e-commerce operators are required to collect, deposit and report of VAT on imports through an e-commerce system (Perdagangan Melalui Sistem Elektronik “PMSE”) for intangible taxable goods and taxable services from outside customs area to within customs area. For ease, the overseas e-commerce operators are allowed to appoint representative for the aforesaid collection, deposit and reporting of VAT.
 
Perppu 1/2020 does not provide details of tax rate and other related implementation procedures of the above tax provisions. Further regulations on the implementation of the above tax provisions are expected to be issued in the near future.
 

2. NON-FISCAL STIMULUS PACKAGE
2.1. Non-Stimulus Package
The non-fiscal stimulus package is expected to be able to maintain stability between supply and demand of products during COVID-19, the package is as follows:
 
 
2.2. Expected Result from the Non-Fiscal Stimulus
This non-fiscal stimulus is expected to maintain domestic supply of products, as well as to take the opportunity from the weakening of Indonesian Rupiah for the export activity. Leniency in import policy is expected to encourage importers to keep on supplying products to Indonesia, in particular, basic necessities (e.g. food), to ensure the continuation of availability during COVID-19. During this critical condition, simplification of export-import mechanism through the NLE, a platform that integrates the Government and private agencies, is crucial as it will be expected to accelerate the flow of products as well as reduce the logistics cost for both exporters and importers.
 
 
3. FINANCIAL STIMULUS PACKAGE
3.1. In particular, for financial sectors, the government has expanded the authority of three core financial regulators in Indonesia, the Financial Services Authority (Otoritas Jasa Keuangan “OJK”), the Bank of Indonesia (“BI”), and Deposit Insurance Agency (Lembaga Penjamin Simpanan “LPS”) (Table 3.2). In addition, both BI (Table 3.3) and OJK (Table 3.4) have also taken extraordinary measures by issuing several policies which are intended to provide economic stimulus and regulatory leniency for business actors in Indonesia during this pandemic. These policies are expected to immediately repress the damaging impact of COVID-19 towards the domestic economy.
 
 
 
 
3.5 Conclusion

 

As the depreciation of IDR (Indonesian Rupiah) and decrease of capital inflows have led Indonesian financial industry to suffer, as well as hinder the Indonesian economic growth, it is noted that predominantly the economic stimulus packages are targeted to tackle the macro-economic issues in Indonesia, i.e. fiscal, non-fiscal, and financial industry. For non-financial business actors, these stimulus packages are directly relevant if their business are from specific priority-sectors (which are directly impacted by the COVID-19), and/or MSME.


 

4. ALTERNATIVES FOR BUSINESS PLAYER

 

Whilst the economic stimulus packages should mitigate most of the Indonesian macro-economic issues and support the livelihood of the business players from priority-sector and MSME, we do not see direct material benefits that can be enjoyed by the non-priority sector or non-MSME business players. For the non-priority sector or non-MSME business players, below are some alternatives actions that can be considered to lessen the impact of Covid-19.  

 

  • Debt Restructuring and Suspension of Payment. As the OJK Policies are silent on the credit/financing restructuration for debtors from non-priority sectors and/or non-MSME (with credit ceilings above IDR 10 Billion), it is advisable for said debtors to take a closer look at the possibility to negotiate their debt/financing structure under their own loan/financing agreement with the Banking/Financing company (possibly to take a look at the force majeure clauses). As a further option, in the case that the debtors fail to negotiate to restructure their debts, they can take the available avenue to request time relief for debt payment by submitting application for the suspension of debt payment (PKPU) to the commercial court.

 

  • Diversification of Business to Other Sectors. After the pandemic, we see that there will be leniency for foreign investors in doing business in Indonesia. Prior to the sudden economic downturn, Indonesia had already planned to issue new regulation on investment which contains more leniency for investors, especially foreign investors, to conduct direct investment in Indonesia. However, the regulation has yet to be issued. During such a global economic downturn, we see the possibility that potential investors will focus more so on their financial recovery as a priority.

 

  • Expansion to Digital Business. While the majority of conventional business players have suffered from the impact of COVID-19, we see that some digital businesses are actually benefitting from the current condition. The quarantine and physical distancing mandate have increased people’s dependence on the use of technology for their daily and social activities. The downside is the Indonesian Government is trying to be more stringent towards digital business players, as already seen by the recent imposition of tax for overseas electronic transaction operators following the issuance of Perppu 1/2020.

 

Due to the current situation, all information provided herein will be rapidly updated by the Government.

If there are any queries with regards to how this may affect your business, please contact us for further legal consultation.

This information does not, and is not intended to, constitute as legal advice; instead, all information, content, and materials are for general information only.

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