Due to the COVID-19 pandemic, the Government of Indonesia predicts the Indonesian economic growth to only reach 4% or lower, subject to the period and severity of the pandemic in affecting or even paralyzing the economy. To anticipate the economic impact of the COVID-19 pandemic, the Government issued the Government Regulation in lieu of Law No. 1 of 2020 dated March 31, 2020 on the State Financial and the Stability of the Financial System Policies in Relation to the Handling of the Coronavirus Disease 2019 (COVID-19) Pandemic and/or Threats that Are Potentially Harmful to the National Economy and/or the Stability of the Financial System (“Perppu 1/2020”).

Perppu 1/2020 sets out policies that may be taken by the Government to anticipate the impact of COVID-19 pandemic to the state finance. In this Newsflash, we will focus on the tax aspects under Perppu 1/2020.

Under Perppu 1/2020, the Government has the authority to stipulate state financial policies, including taxation policies. The taxation policies include the adjustment of the corporate income tax rates, tax for trade through electronic system activities, extension of period for the fulfillment of taxation rights and obligations, and customs facilities.

• ADJUSTMENTS OF CORPORATE INCOME TAX RATE

As of 2010, under the Income Tax Law, the corporate income tax rate is stipulated at 25%. Through Perppu 1/2020, the Government lowers the income tax rates for domestic corporations and permanent establishments to be 22% for 2020 and 2021 and 20% for 2022 and the subsequent years.

A publicly-listed company that (i) trades at least 40% of its shares on the Indonesian stock exchange and (ii) meets certain criteria, is eligible for an additional 3% tax rate reduction (i.e., 19% for 2020 and 2021, and 17% for 2022 and the subsequent years). The criteria for companies that will be eligible for this lower tax rate will be further stipulated in a Government Regulation.

• TAX TREATMENT FOR TRADE THROUGH ELECTRONIC SYSTEM

Perppu 1/2020 reaffirms the Government’s intention in imposing taxes for e-commerce transactions., This intent was reflected in the recently-issued E-Commerce Regulation.  Value-added tax (VAT) will be imposed on electronic transactions of Intangible Taxable Goods and/or Services from Outside Custom Areas into Custom Areas, while income taxes will be imposed on offshore merchants, service providers, and/or Organizers of Trade through the Electronic Systems (Penyelenggara Perdagangan Melalui Sistem Elektronik – better known as the Platform Provider) with significant economic presence in Indonesia.

Perppu 1/2020 stipulates similar certain quantitative thresholds with the E-Commerce Regulation, which, if fulfilled, will constitute the “significant economic presence” in Indonesia for offshore corporations.  The details of the procedures by which the taxes will be imposed as well as the quantitative thresholds for a significant economic presence of an offshore entity will be set forth in a Minister of Finance Regulation.

• EXTENSION OF PERIODS FOR FULFILLMENT OF TAXATION RIGHTS AND OBLIGATIONS

The Government extends the periods for the fulfillment of taxation rights and obligations which due dates fall during the force majeure period of the COVID-19 pandemic, as follows:

1. due dates for the submission of objections are extended by up to six months;
2. due dates for the refund of tax overpayment are extended by up to one month; an
3. due dates for the implementation of taxpayer rights in the form of issuance of letters by the Director General of Tax are extended by up to six months.

The force majeure period of the COVID-19 pandemic refers to the period stipulated by the Government through the Chairman of the National Board for Disaster Management (Badan Nasional Penanggulangan Bencana or “BNPB”). As at the date of this Newsflash, the BNPB has stipulated an emergency period due to the Coronavirus as of January 28, 2020 to May 29, 2020.

• CUSTOMS FACILITIES

Under Perppu 1/2020, the Minister of Finance has the authority to grant relief of or discount for import duties for the import of goods for the handling of COVID-19 and/or to deal with threats that are potentially harmful to the national economy and/or stability of the financial system. These facilities will be stipulated under Minister of Finance Regulation(s).

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Perppu 1/2020 is valid as of March 31, 2020.  However, in accordance with the Constitution and applicable laws, the House of Representatives (Dewan Perwakilan Rakyat or “DPR”) will decide on its next hearing whether to approve Perppu 1/2020 into a law. If the DPR decides to cancel Perppu 1/2020, then Perppu 1/2020 will immediately be cancelled.

 

April 8, 2020

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