Gov’t Amends Regulation on Taxable Income Calculation

The Government has amended regulation on calculation of taxable income and repayment of income taxes.

The regulation in question is Government Regulation Number 94 of 2010 on Calculation of Taxable Income and Repayment of Income Taxes in the Current Year.

The amendment was made to boost investment in the country’s labor-intensive industries, create jobs, promote involvement of business and industrial world to improve the country’s human resources, enhance the country’s competitiveness, and boost participation of business world and industries in research and development (R&D).

President Joko “Jokowi” Widodo on 25 June 2019 signed Government Regulation Number 45 of 2019 on the amendment to the regulation.

Under the amended regulation, Article 29 of the regulation now reads as follows:

1. For taxpayers who make new investment which constitute pioneer industry, who do not obtain the facilities as referred to in Article 31A of the Income Tax Law may be given exemption facilities or deduction of corporate income tax as referred to in Article 18 paragraph (5) of Law Number 25 of 2007 on Investment;
2. The aforementioned pioneer industry constitutes an industry with broad relations, provides added value and high externalities, introduces new technologies, and has strategic values ??for national economy.

Article 29A of this regulation also states that for domestic taxpayers who make new investments or business expansion in certain business sectors that constitute a labor intensive industry and do not obtain facilities as referred to in Article 31A of the Income Tax Law or facilities as referred to in Article 29 paragraph (1), income tax facilities may be given in the form of 60% net income deduction of the total investment in the form of tangible fixed assets including land used for main business activities, which are charged for a certain period of time.

Meanwhile, Article 29B states that for domestic taxpayers who organize working programs, internship and/or education aimed at fostering and developing certain competency-based human resources may be given a deduction in gross income of no more than 200% (two hundred percent) of the total costs incurred.

“Certain competencies as referred to are competencies to improve quality of labor through strategic work practices, internship and/or education to achieve labor effectiveness and efficiency as part of investment in human resources, and fulfillment of the structure of the labor needs required by business and/or industrial world,” reads Article 29B paragraph (2).

For domestic corporate taxpayers who conduct certain R&D in Indonesia, according to this Government Regulation, a deduction in gross income may be given of no more than 300% (three hundred percent) of the total costs incurred, which are charged in certain period of time.

“The said R&D are R&D activities carried out in Indonesia to make inventions, create innovations and new technologies, and/or a transfer of technology for the development of industries to boost competitiveness of national industries,” reads Article 29C paragraph (2 ).

Also under this amended Government Regulation, facilities for the exemption or deduction of the said corporate income tax, facilities for the deduction of net income for new investments or business expansion in certain business sectors which constitute the said labor intensive industries, deduction of gross income for the implementation of working programs, internship and/or education to foster and develop certain competency-based human resources, and deduction in gross income for the R&D in Indonesia are regulated in a Regulation of Minister of Finance.

“This Government Regulation takes effect on the date of its promulgation,” reads Article II of Government Regulation Number 45 of 2019, promulgated by Minister of Law and Human Rights Yasonna H. Laoly on 26 June 2019. (Center for Data and Information of Cabinet Secretariat/ES)

Translated by: Muhardi

Edited by: M. Ersan Pamungkas