Aspects of Income Tax on Foreign Exchange Proceeds from Natural Resources Exports

Bank Indonesia reported that by the end of March 2024, the foreign currency Term Deposit (TD) of Foreign Exchange of Natural Resources or Sumber Daya Alam (SDM) Export Proceeds or Devisa Hasil Ekspor (DHE) had reached USD 1.95 billion or Rp31.28 trillion. Compared to the previous month, it did not experience significant changes. However, Bank Indonesia reported that the number of companies that placed DHE in monetary instruments increased, amounting to 160 exporters (Infobank 2024).

 

In 2023, the government issued Government Regulation Number 36 2023 concerning Foreign Exchange of Export Proceeds from Natural Resources Concession, Management, and/or Management Activities (PP DHE SDA). As a form of revision of PP No. 1 of 2019, this PP aims to encourage sources of financing for economic development, encourage investment financing and working capital to accelerate the downstream of natural resources, increase investment and export performance of natural resources, and support the realization of macroeconomic stability and domestic financial markets (Ministry of Finance 2023).

 

This Government Regulation stipulates the obligation of exporters in the mining, plantation, forestry, and fisheries sectors to place Foreign Exchange Proceeds (DHE) of Natural Resources (SDA) into the Indonesian financial system through a specific DHE SDA account instrument at the Indonesian Export Finance Agency or a bank that conducts business in foreign currency.

 

However, attracting exporters to place their funds in the DHE SDA instrument is not easy. Moreover, export proceeds from natural resources are dominated by great exporters. Therefore, there is a need for tax incentives for funds placed in DHE monetary instruments.

 

Recognizing the importance of tax incentives for natural resource exporters, at the end of May 2024, the government re-issued Government Regulation No. 22 of 2024 concerning the Treatment of Income Tax from the Placement of Foreign Exchange Proceeds from Natural Resource Exports in Monetary Instruments and or Specific Financial Instruments.

 

The regulation stipulates that income received or obtained by exporters from the placement of DHE SDA in monetary instruments and/or specific financial instruments in Indonesia is subject to final income tax.

 

The amount of income tax on income received from the placement of DHE is generally lower than the income tax rate imposed on deposits. As we know, the final income tax rate on deposit interest is 20%. However, a different rate is imposed by the government on income from the placement of DHE SDA.

 

There are four types of final income tax rates imposed on income derived from the placement of DHE SDA in foreign exchange instruments, including the following:

• A rate of 0% is imposed on instruments with a placement period of more than six months;
• A rate of 2.5% is charged to instruments with a placement period of six months;
• A rate of 7.5% is charged on instruments with a placement period of three to six months;
• A rate of 10% is charged on instruments with a placement period of one to three months;

 

The government imposes a lower final income tax rate if the DHE SDA in foreign currency is converted into rupiah. The rates are as follows:

• A rate of 0% is imposed on instruments with a placement period of six months or more;
• A rate of 2.5% is imposed on instruments with a placement period of between three and six months;
• A rate of 5% is charged to instruments with a placement period of one to three months.

 

The tax basis used to calculate the final income tax above is the gross income received by exporters on the placement of DHE SDA in monetary or financial instruments.

 

Regarding the income tax settlement, PP 22/2024 stipulates that the final income tax as above is paid through a withholding mechanism by banks or Indonesian Export Financing Institutions. Thus, at the time of payment of income from the placement of DHE SDA, banks and LPEI are required to make final income tax deductions.

 

Legal basis

• Government Regulation Number 36 of 2023 concerning Foreign Exchange Export Proceeds (DHE) from Natural Resources Concession, Management and/or Management Activities;
• Government Regulation Number 22 of 2024 concerning the Treatment of Income Tax from the Placement of Foreign Exchange Proceeds from Natural Resources Exports in Monetary Instruments and/or Specific Financial Instruments.