Introducing Tax Incentives, A Stimulus Amid Covid-19

The novel Coronavirus has created a tremendous disruption to businesses around the globe. The rapid spread has disturbed the supply chain and therefore creating a snowball effect to the global economy. As a result, the stock market plummeted, unemployment rate skyrocketed, and majority of countries are on the brink of recession. According to Worldbank[1] , Indonesia’s real GDP growth slowed down to 3.0% in Q1 2020 from 5% yoy in Q4 2019, and recovery is a very long road.

To stimulate the economy, the Minister of Finance (“MOF”) has issued MOF Regulation No. 23/PMK.03/2020 on tax incentives. The regulation that has been made effective on April 27, 2020 is designed to stabilize the economy and encourage productivity in certain business sectors. The incentive applies for six months from April to September 2020 but recently has been extended to December 2020 and amended by MOF Regulation No. 44/2020. Please take note that this incentive only applies to certain sectors that qualifies for the regulation.

Article 21 Income Tax Incentive

Employees who qualify for this incentive will receive Article 21 income tax incentive as Employers are required to pay the full monthly salary of the mentioned employees. In order to qualify, only employers that has Business Classification Code (Kode Klarifikasi lapangan Usaha or “KLU”) that are listed in Attachment A of MOF Reg. 44/2020 that can apply this incentive to their employees. However, employees who can receive this incentive are employees who have annual gross income below or not more than 200 million rupiah.

This incentive will affect the income received by employees from April to December, this means that if previously the salary was deducted from Article 21, during this 9 months the employees will receive back the deducted amount along with the monthly salary received by the end of the month. Along this period, Article 21 income tax payments are borne by the government.

To apply, employers/taxpayers must submit a written notification to the Tax Office where it is registered along with the required documents. This notification can be submitted and is processed through www.pajak.go.id. The applying employers/taxpayers will then receive a notification of the approval or rejection of the incentive. The regulation is applicable from April to December 2020. If approved, employers/taxpayers must submit a realization report every 20th of each month.

Article 22 Import Income Tax Incentive

Income tax on imports will not be collected from taxpayers who has KLU that is included in Attachment I of MOF Reg. 44/2020. The exemption is the effect of the reduced activity of importing goods to Indonesia in order to prevent the spread of the virus which is increasing in an alarming state. The decline has severely affected Indonesia’s trade balance, therefore it is crucial to provide a stimulant through the Article 22 to encourage the taxpayers through the uncertain times. This regulation is valid from April to December.

To obtain this incentive, taxpayers must submit an application along with the required documents to the Tax Office through registration at www.pajak.go.id where the Tax Office will issue an Exemption Letter (Surat Keterangan Bebas or “SKB”) or Rejection Letter. If approved, taxpayers are obligated to submit a realization report every three months through www.pajak.go.id.

Article 25 Income Tax Incentives

In MOF Reg. 44/20, it also specifies that qualified taxpayers will receive a 30% deduction on their Article 25 Income tax installments. Taxpayers that receive this incentive are those whose KLU is mentioned in Attachment N of MOF Reg. 44/2020, taxpayers with Bonded Zone Permit, or taxpayers with KITE. The incentive is available from April to December 2020.

Taxpayers can apply for deduction to the Tax Office where they are registered via www.pajak.go.id. They will receive a confirmation of the receipt of notification if approved or a rejection letter. If approved, taxpayers are obligated to submit a realization report every three months through www.pajak.go.id.

Article 14 VAT Incentive

The regulation states that qualified taxpayers may receive early refund of tax overpayment as a low-risk taxable entrepreneur. The amount of refundable tax falls under two categories: Exporters and Non-Exporters. Taxpayers that acts as an exporter has no nominal limit on the VAT refund, while non-exporters are given restitution with a maximum value of 5 billion rupiah. The refund is available for tax period April through December 2020.

To qualify, a company must have a KLU mentioned in Attachment I of MOF Reg. 44/2020, or an effective KITE facility or Bonded Zone Permit when submitting its application for VAT Tax Return overpayment refund no later than October 31, 2020.

Please take note that not all of taxpayers are eligible for four incentives mentioned above. Taxpayers whose KLU or is a KITE or has Bonded Zone Permit mentioned under the attachment of MOF Ref. 44/2020 are qualified to receive these incentives. To summarize, there are 440 KLU mentioned under Article 21, and 102 KLU mentioned under Article 22, Article 25 and Article 14.


[1] https://www.worldbank.org/en/country/indonesia/publication/indonesia-economic-prospect

Handy G