Tax holidays are tax incentives that are usually used by developing countries or countries that are in an economic transisition phase with the purpose of attracting foreign investment. This tax incentive can be used by newly established companies to attract direct investment which will receive facilities in the form of exemption from payment of income tax or can be in the form of a reduction in corporate income tax rates within a certain period of time. Not all companies can enjoy this tax holiday easily. The investor must fulfill several requirements such as being engaged in a pioneer industry that has extensive linkages, provides added value and high externalities, introduces new technology, and has strategic value for the national economy. The tax holiday policy is regulated through Regulation of The Minister of Finance Number 130 of 2020 on The Granting of Corporate Income Tax Reduction Facility as amended by The Regulation of The Minister of Finance Number 69 of 2024. The amendement of this Regulation of The Minister of Finance is motivated by the period of the proposed tax holiday facility that ends on October 8 2024, as stipulated in The Regulation of The Minister of Finance Number 130 of 2020 on The Granting of Corporate Income Tax Reduction Facility. Through this Regulation of The Minister of Finance, it also regulates the extension of the proposal period for the provision of corporate income tax reduction facilities set until December 31, 2025.
The tax holiday to obtain, taxpayers must to fulfill the criteria stipulated in Article 3 Paragraph 1 Regulation of The Minister of Finance Number 69 of 2024. The criteria include taxpayers engaged in pioneer industries, having status as Indonesian legal entities, making investments that have not received other tax holiday facilities, having a new investment plan value of at least IDR 100 billion, Fulfill the required Debt Equity Ratio, and committed to realize the investment no later than 1 year since the decision to use the facility is given. The amount of tax holiday that can be enjoyed is 100% for investments of at least IDR 500 billion. This facility can be utilized for 5 to 20 years. Meanwhile, for investments of at least IDR 100 billion to less than IDR 500 billion, a 50% reduction in corporate income tax is given with a utilization period of 5 years.
Tax holidays will have a positive impact on the progress of a country, because this incentive will attract investors to invest their capital which will also increase state revenue, employment, and economic growth.
By Olina Rizki Arizal – Partner TBrights
TBrights is a Tax Consultant in Indonesia which is now an Integrated Business Service in Indonesia that can provide comprehensive tax and business services.
Reference:
- The Regulation of The Minister of Finance Number 69 of 2024 on the Amendment to Minister of Finance Regulation Number 130/PMK.010/2020 on the Provision of Corporate Income Tax Reduction Facility
