Indonesia to Soften Impact of Global Minimum Corporate Tax with New Incentives

Berita Baru, Jakarta – Indonesia plans to extend its tax holiday policy for certain investments and introduce new incentives to mitigate the effects of the upcoming global minimum corporate tax rate of 15%, according to a finance ministry official.

Indonesia, Southeast Asia’s largest economy, is one of 140 countries that agreed to the 2021 global tax deal, which allows governments to impose a top-up tax to ensure corporate profits are taxed at a minimum rate of 15%, even in countries with lower rates. The agreement aims to limit tax competition between countries.

“We will extend the tax holiday so there would not be any disruption to investment,” said Febrio Kacaribu, head of the fiscal policy agency at Indonesia’s finance ministry, during a press briefing on Friday, Reported from the CNA News page on Friday (4/10/2024).

Under Indonesia’s current tax holiday policy, companies investing at least 500 billion rupiah (US$32.3 million) can benefit from a 0% corporate income tax (CIT) for up to 20 years, compared to the normal CIT rate of 22%. However, with the global minimum tax rate expected to be implemented next year, companies will need to pay a 15% CIT, limiting the government’s ability to offer the full tax holiday.

To compensate for the 15% tax companies will still be required to pay under the global minimum tax, Febrio mentioned that the government is considering new policies, including additional tax incentives, although details have yet to be finalized. “We don’t want our taxing rights to be taken by the investor’s origin country,” he added.

Indonesia’s tax holiday policy is designed to attract investments in key industries, such as upstream basic metals, oil and gas refining, and chemicals, making it crucial to maintain its appeal as the global tax landscape changes.