ANNOUNCEMENT 12 Jan 2018

On 12 January 2018, the Indonesian Ministry of Industry issued regulation 1/2018 amending the investment-related income tax reduction scheme.

NUMBER OF INTERVENTIONS

2

  • 1 harmful
  • 0 neutral
  • 1 liberalising

SOURCE

Ministry of Industry regulation 1/2018 (in Bahasa Indonesia)
http://regulasi.kemenperin.go.id/site/baca_peraturan/2356

Inception date: 12 Jan 2018 | Removal date: open ended
Still in force

Tax or social insurance relief

Regulation 1/2018 by the Ministry of Industry amends one of the three criteria to provide investment-related income tax reduction: the third criterion for the tax reduction was "high local content" (art. 3 of government regulation 18/2015, see Related State Acts). This criterion has now been clarified to having "a local content of raw materials, auxiliary materials, or machines of 20% or more" (art. 2(1)c; own translation). Given that 20% represents an objectively low threshold for local content, this criterion amendment is likely to increase the eligibility for the income tax reduction. Hence, this intervention has been classified as trade-distorting.

The regulation came into force on 12 January 2018.

AFFECTED PRODUCTS

 
N/A
Inception date: 12 Jan 2018 | Removal date: open ended
Still in force

Tax or social insurance relief

The Ministry of Industry regulation 1/2018 also amends, compared to previous regulation (see Related State Acts), the sector-specific criteria to qualify for investment-related income tax reductions. Depending on the industry, these criteria range from a minimum investment of 100 billion IDR (ca. 7.3 million USD) to a creation of 100 new jobs to the introduction of state-of-the-art technologies in the new factories. A detailed list of the requirements can be found in the first and second appendix of the regulation.

Given that the additional sector-specific criteria are likely to decrease the eligibility for the income tax reduction, this intervention has been classified as trade-liberalising. Furthermore, it should be stated that every eligible sector is facing additional criteria compared to the previous regulation in place.

The regulation came into force on 12 January 2018.

 
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