Tax Incentive for Taxpayers and Its Implementation During Covid-19

LEGAL UPDATES BY BEPARTNERS

Corporate - Tax

12 May 2020

On 27 April 2020, the Ministry of Finance has revoked the Minister of Finance regulation No. 23/PMK/03/2020 (“PMK No. 23/2020”) by the enactment of the Ministry of Finance regulation No. 44/PMK/03/2020 on Tax Incentives for Taxpayers Affected by the Covid-19 Pandemic ("PMK No. 44/2020"). PMK No. 44/2020 expands the coverage of the tax incentives to also cover taxpayers in 18 new business sectors, including not limited to, the tourism, logistics, and retails sectors. Taxpayers in those additional sectors are now eligible in obtaining the incentives. PMK No. 44/2020 has also added income tax incentives to the fiscal incentive list.

The PMK No. 44/2020 is covered in the fourth stimulus package. The government is also ready to allocate another IDR 35.3 trillion for the new tax incentive under PMK No. 44/2020. The new tax incentives are expected to lessen the negative economic impact of Covid-19, with hopes to reduce the risk of having many business players having to declare bankruptcy due to economic suffering. While this newly issued tax incentive now covers taxpayers in more sectors than the previous incentive of PMK No. 23/2020, these new incentives are obtainable by following application procedures. This article aims to provide a better understanding of the procedures to obtain the incentives under PMK No. 44/2020 and Circular Letter No. 29/PJ/2020 (“SE No. 29/2020”).

1. Article 21 Employee Income Tax (“EIT”)

a. The EIT incentive should be able to ease the burden of many low-income individuals and also should be able to maintain purchasing power for their daily needs. The Government will bear the Article 21 EIT payable for employees with the followings criteria:

i. Employees who receive an income from the employer from the following sectors:

• Employer with Business Classification (Klasifikasi Lapangan Usaha or “KLU”) that is set out in Attachment A of PMK No. 44/2020;

• Employer who is an import facility for export purposes company (Kemudahan Impor Tujuan Ekspor or "KITE"); and has Bonded Zone Administrator license (Izin Penyelenggara Kawasan Berikat), Bonded Zone

Entrepreneur license (Izin Pengusaha Kawasan Berikat) or Entrepreneur within Bonded Zone (Izin Pengusaha Dalam Kawasan Berikat or "PDKB");

ii. Employees that have a Tax identification number (“NPWP”); and

iii. Employees that receive an annualized regular gross income not exceeding IDR200 million.

b. The application EIT tax incentive are as follows:

c. When the employer has deducted the EIT for the income provided to the employee, then:

i. employer can correct the Tax Return on EIT;

ii. the overpayment of EIT as the result of Tax Return correction can be compensated for the next tax period, or a transfer is proposed for the overall payment of EIT;

iii. the EIT that has been withheld by the employer is paid to the employee.

2. Final Income Tax incentive based on Government Regulation No. 23 of 2018

a. The incentive for final income tax under Government Regulation No. 23 of 2018 ("GR No. 23/2018") for micro, small and medium enterprises has just recently given under the PMK 44/2020. The incentives for the final income tax are as follows:

i. reduction of the final income tax rate for taxpayers who have a gross turnover of up to IDR4.8 billion in 1 (one) fiscal year.

ii. income from businesses received by taxpayers who have a certain gross turnover is subject to a final income tax of 0.5% of the total gross turnover.

b. To obtain the incentives, taxpayers that have gross turnover shall submit a photocopy of the certificate at the time of transaction which is the object of withholding or collecting income tax or during importing where the object is not the subject of Article 22 Income Tax on Import.

The procedure for submitting an application for a certificate to be able to take advantage of the final tax income incentive is as follows:

3. Article 22 Income Tax on Import

a. The slowing down of the economy has caused an effect of low trade mobility, the Article 22 Income Tax on Import aims to encourage importers in order to maintain supply chains within Indonesia, especially for importing in basic daily needs and medical supplies that are heavily needed during this Covid-19 pandemic. This tax incentive is eligible for taxpayers operating in a specified industry (KLU that are included in Attachment I of PMK No. 44/2020); that is designated as a KITE company; or and has Bonded Zone Administrator license, or a PDKB, at the time of the release of goods from the Bonded Zone to Other Places in the Customs Area.

b. The procedure to apply the incentive for Article 22 Income Tax on Import, is as follows:

4. Article 25 Income Tax

a. A 30% reduction of the Article 25 Monthly Tax Installments is provided to taxpayers who fulfil the criteria of the KLU that are included in Attachment N of PMK No. 44/2020; that is designated as a KITE company; or has Bonded Zone Administrator license, Bonded Zone Entrepreneur license or PDKB.

The reduction of monthly tax installment 30% is applicable to:

i. Calculation of a monthly tax installment based on Fiscal Year (“FY”) 2019 Corporate Income Tax Return (“CITR”);

ii. Monthly tax installment using the corresponding amount to December 2019 in case the FY 2019 CITR has not been submitted;

iii. Calculation of monthly tax installment based on DJP Decision Letter for reduction of monthly tax installment due to weakening business condition; or

iv. Calculation of monthly tax installment based on MOF regulation for certain taxpayers.

b. The procedure to apply the incentive for Article 25 Income Tax, as follows:

Submission of notice to utilize Article 25 incentive for the April 2020 Tax Period can be done no later than 15 May 2020. In the event that the taxpayer has paid Article 25 Income Tax which should have been given a reduction in the Tax Period, the taxpayer may submit book-entry for the overpayment of Article 25 Income Tax.

5. Value Added Tax (VAT)

a. The government will automatically consider qualified taxpayers as low-risk VAT entrepreneur (“PKP”) if it fulfils the following criteria:

i. PKP does not need to submit a request for stipulation as low-risk PKP;

ii. The Directorate General of Tax (Direktorat Jenderal Pajak or “DJP”) does not issue a decree on the stipulation as low-risk PKP;

iii. PKP has KLU that is included in the list provided in Attachment I of PMK No. 44/2020; or a KITE company; or has Bonded Zone Administrator license, Bonded Zone Entrepreneur license or PDKB.

The maximum amount of VAT overpayment stated in the VAT return for the preliminary VAT return may be made at IDR 5 billion (per month).

b. Further guidance related to VAT incentive shall include the following

6. Submission of Realization Report on Tax Incentives

Taxpayers and employers are required to submit the realization report for EIT, Final Income Tax, Article 22 Income Tax on Import, and Article 25 to DJP Online as per the following timeline:

a. On 20 July 2020, for April 2020 to June 2020 tax period; and

b. On 20 October 2020, for July 2020 to September 2020 tax period.

Closing Remarks

By introducing further tax incentives this may stimulate the stability of economic growth, people’s purchasing power, and productivity of certain sectors affected by the Covid-19 outbreak. Article 21 of the Employee Income Tax is aimed to maintain the purchasing power of millions of employees in varying sectors whilst Article 25 has the objective to stabilize the domestic economy and potentially increase exports. The Government is continuously giving its best effort to lessen the negative impact of the pandemic. We believe that providing tax incentives to individuals and companies that are most affected by the Covid-19 pandemic, until the emergency abates, is the right move. It can be expected that there will be a new stimulus package issued by the Government in the near time, especially stimulus for the health care sector due to its large role in suppressing the virus.

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.