Tax Exemption on Foreign Loan and Grants for Indonesian Government Projects

Recently, some Indonesian media have highlighted that Indonesia’s Foreign loan has been controlled regarding the upcoming crisis in 2023.  Indonesia’s Foreign Loan even decreased by around 7% in the third quarter of 2022 to 394.6 billion USD from 403.6 billion USD in the second quarter of 2022. Indonesian Government was trying to hold its accountability and credibility on paying off its debt especially to foreign loan on some program and project that have been nearby the due date.[1]

Foreign loan has become a nationwide issue that has been associated with current Indonesian President, Joko Widodo, on financing his abundant national project and program. Joko Widodo in the first three years of his second period has promoted the development of several strategic projects from infrastructure projects including transportation, electricity and development of Indonesia’s new capital to projects related with technology, revitalization of the industrial and agricultural sector, etc. [2] The repayment of foreign loans has become proof that the Indonesian Government is taking seriously on pursuing its national strategic projects and its foreign loans that financing partly or even wholly of the projects.

While doing so, Indonesia itself has ease the tax regulation to increase the Foreign Loan and Grants for financing Indonesian Government Project in Government Regulation No.42 of 1995 stated that:

  1. Import Duties and Additional Import Duties Payable regarding Indonesian Government Projects financing by foreign loans and grants are Exempted
  2. VAT and VAT Luxury Goods and delivery of goods and services regarding Indonesian Government Projects financing by foreign loans and grants are un-imposed
  3. Income Tax payable regarding Indonesian Government Projects financing by foreign loans and grants are Borne by the Government

Later in terms of exempted VAT included to:

  1. Entry of goods of services included taxable goods import, utilization of taxable service and/or utilization of intangible taxable goods from external customs jurisdiction by main contractor, consultant or supplier.
  2. Delivery of taxable good or service by main contractor, consultant or supplier to project owner.[3]

TBrights as integrated business service in Indonesia will assist you for tax and business matters in Indonesia




by Olina Rizki Arizal – TBrights International Tax & Transfer Pricing Partner

Leave a Comment

Your email address will not be published. Required fields are marked *

Whatsapp Us
💬 Need Consultation ?
Hello, Can TBrights help you?