After it was decided to postpone talks between the Indonesian government and the House of Representatives (DPR) about the tax amnesty bill (talks have been postponed until April 2016), the government is in need of formulating a new tax revenue target as the late implementation of the tax amnesty program could mean the government will miss out on tens of trillions of rupiah (billions of US dollars) in tax revenue this year. Indonesia's tax amnesty bill, proposed last year, will make it easier for tax evaders to come clean and repatriate their funds into Indonesia.

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So far this year, a total of 108 Indonesian companies have taken advantage of the tax incentive offered by the government of Indonesia through its fifth economic stimulus package (released on 22 October 2015). This tax incentive makes it more attractive for companies to revalue their fixed assets. With higher-valued assets as well as larger capital, these companies can borrow more funds from banks, hence having more room to invest. This should then boost overall economic growth of Southeast Asia's largest economy.

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Through the revision of an existing regulation the Indonesian government aims to support growth in the nation's property sector. The revision involves a tax incentive that allows Indonesia's first-time home buyers to obtain a subsidized lending rate (mortgage). Those first-time home buyers who have a maximum monthly income of IDR 7 million (approx. USD $504) are eligible to enjoy this incentive that falls under the Housing Loan Liquidity Facility (Fasilitas Likuiditas Pembiayaan Perumahan, abbreviated FLPP).

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In the seventh economic stimulus package, the Indonesian government cuts income tax (up to 50 percent) for employees in labor-intensive industries who earn less than IDR 50 million (approx. USD $3,600) per year. This facility, unveiled on Friday (04/12), aims to combat financial pressures on companies caused by the economic slowdown and next year's higher minimum wages (in order to avert a rise in unemployment as companies may feel the need to sack employees). This tax incentive will be offered for a period of two years and - if successful - will be extended.

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Production of cars in Indonesia is expected to decline 15 percent (y/y) to an estimated 1.1 million vehicles in 2015, far below the target (1.6 million vehicles) set in the automotive industry roadmap desinged by the Indonesian Industry Ministry. This drop is due to the slowdown in car sales in Southeast Asia's largest economy. Slowing economic growth, which dragged down Indonesia's gross domestic product (GDP) growth to a six-year low, resulted in weakening purchasing power of Indonesian consumers.

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The Indonesian government unveiled its sixth economic stimulus package on Thursday (05/11). This latest package involves tax incentives for investment in Indonesia's special economic zones. Special economic zones are defined as designated areas where natural resources (mined in or around the zone) are processed. Chief Economics Minister Darmin Nasution said investors can get income tax discounts of between 20 and 100 percent for a duration up to 25 years. These generous tax holidays are designed to attract investment in the country's manufacturing industry.

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After the government of Indonesia announced that, effective immediately, a tax incentive is offered to those companies that revalue their fixed assets (as part of the government's fifth stimulus package), both fully state-owned utility firm Perusahaan Listrik Negara (PLN) and partially state-owned airline Garuda Indonesia started to prepare proposals for asset revaluation. A revaluation would increase their equity, allowing them to obtain more loans for business expansion.

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Effective immediately, the government of Indonesia introduced a new tax incentive that makes it more attractive for companies to revalue their fixed assets. Previously, companies had to pay a ten percent tax on the company's fixed asset growth. As a result, companies tended to refrain from increasing the level of fixed assets resulting in limited tax revenue. The Indonesian Finance Ministry said that companies will only have to pay 3 percent tax on the increased amount, provided that they submit their proposals for fixed asset revaluation before the end of this year.

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The second installment of Indonesia's September economic policy package, unveiled on Tuesday (29/09), received a warmer response from market participants compared to the first one (released on 9 September), evidenced by rebounding stocks and a stronger rupiah rate yesterday. Indonesia's latest policy package involves interest rate tax cuts for exporters, the speeding up of investment licensing for investment in industrial estates, and a relaxation of taxes on imports of capital goods in industrial estates and in the aviation industry.

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Indonesia plans to cut taxes for local exporters in a bid to boost the country’s foreign exchange reserves, while supporting the rupiah, as part of its second policy package. Indonesia’s rupiah has depreciated 18.1 percent since the start of 2015 due to looming higher US interest rates, low commodity prices, and China’s yuan devaluation. The government now plans to cut income tax on interest that exporters earn when depositing their export proceeds in local banks. Currently, income tax on bank interest (from deposit accounts) stands at 20 percent.

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Indonesia's tax revenue realization in the first half of 2016 was disappointing. According to the latest data, Southeast Asia's largest economy collected a total of IDR 518.4 trillion (approx. USD $39.6 billion) worth of tax revenue (including customs and excise) in the first six months of 2016, down 3.3 percent (y/y) from tax revenue realization in the same period one year earlier, and only 33.7 percent of total targeted tax revenue (IDR 1,539.2 trillion) set in the revised 2016 State Budget. The disappointing performance is mainly due to weak tax income from the oil and gas sector.

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The government of Indonesia unveiled the second installment of its September economic policy package on Tuesday (29/09). The package is introduced in an attempt to boost economic growth in Southeast Asia’s largest economy and defend the ailing rupiah. Indonesia’s GDP growth slowed to a six-year low of 4.67 percent (y/y) in Q2-2015, while the rupiah has depreciated to a 17-year low against the US dollar. Capital outflows from Indonesia are the result of monetary tightening in the USA, low commodity prices and sluggish global economic growth (particularly China’s hard landing).

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A high positioned government official said that the government of Indonesia plans to cut corporate tax gradually from 25 percent currently to below 18 percent in a bid to make Indonesia a more lucrative place to conduct business. Luhut Panjaitan, President Joko Widodo’s Chief of Staff, confirmed that Widodo has already ordered this latest tax move. Over the past few weeks we have seen the announcement of a number of new tax policies as the government aims to boost tax collection by 30 percent in 2015.

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Apart from the five tax incentives that I have mentioned in a previous column, the Indonesian government also intends to ease two other tax rules in order to boost investments in Indonesia from 2014 onwards. These are the tax holiday and tax allowance. Relaxation of the tax holiday involves an alteration to the period as well as the size of the investment, and relaxation of procedural difficulties. Relaxation of the tax allowance involves the revision of the number of sectors that are eligible and a relaxation of procedures in the form of tax clearance.

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The government of Indonesia is busy preparing seven tax incentives to boost investment flows in 2014. Investments currently account for approximately 32 percent of the country's gross domestic product (GDP). Only domestic consumption owns a larger stake towards the economy with 55 percent. The regulatory framework related to the seven incentives is expected to be finalized by the end of this year. The incentives consist of five new ones and the relaxation of two older incentives, namely the tax holiday and tax allowance.

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