The Directorate General of Taxes (DGT) at the Ministry of Finance is still reviewing the tax provisions that will apply to transactions involving gold-based exchange-traded funds (ETFs). As part of the process, the government has also sought input from industry players and associations.
DGT Director of Tax Counseling, Services, and Public Relations Inge Diana Rismawanti said the discussions were aimed at understanding the characteristics and business flow of gold ETFs before determining their tax treatment.
According to Inge, several associations have discussed ETF transaction mechanisms with the DGT. The government wants to ensure that the provisions eventually adopted are aligned with business practices surrounding the investment instrument.
One of the issues still under discussion is the type of income tax to be imposed. A proposal has emerged for gold ETF transactions to be subject to final income tax. The scheme would differ from Article 22 income tax, which is generally non-final and can still be credited against tax payable.
“If, for example, these ETFs involve real-time transactions and a final tax is proposed, this is still being reviewed internally by the Ministry of Finance,” Inge said in Jakarta recently.
In addition to income tax, the VAT treatment of gold-based ETFs has yet to be determined. The DGT is continuing discussions with relevant parties to determine whether such transactions will be subject to VAT or receive specific tax treatment.
Beyond taxation, the government is also considering the availability of gold as the underlying asset of ETFs. This is particularly important when investors choose to redeem their ETF units.
Inge explained that an increase in gold ETF transactions could potentially be followed by higher redemption demand. Therefore, the government needs to ensure that the supply of gold serving as the underlying asset is sufficient to meet demand if redemptions increase.
Unlike physical gold ownership, ETF investors do not directly see or hold the gold underlying their investment products. Therefore, ensuring an adequate gold supply is one of the factors that needs to be assessed before the market expands further.
For now, the government believes that gold availability has the potential to meet market demand. However, the situation will need to be evaluated as the volume of gold ETF transactions could increase in the future.
The DGT expects discussions on the tax treatment to proceed alongside preparations for the development of the gold ETF market. Decisions on when to open or expand the market, however, do not rest with a single institution and will require coordination among various authorities and stakeholders.
The government will continue the discussions jointly, including on the VAT treatment. Through such coordination, the government hopes to establish an appropriate tax framework before gold ETF activity expands further.
Inge further said that the tax provisions for gold-based ETFs are planned to be stipulated in a government regulation.
The drafting of the regulation will require discussions and coordination among government institutions. The government hopes the process can progress in line with preparations for the market, so that when gold ETFs begin to be traded more widely, the legal framework governing their tax treatment will already be in place.
This would provide market participants and investors with greater certainty over the applicable tax treatment of gold-based ETF instruments.
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