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Jakarta, Ideatax -- The Fiscal Policy Agency (BKF), Ministry of Finance, reported that during 2022, the government has provided a number of tax allowances for businesses to increase the amount of investment and ease of doing business. The tax allowances provided include tax allowances for investment in certain fields, tax allowances in special economic zones, tax allowances in industrial zones, tax allowances for the use of renewable energy, and investment allowances for certain labor-intensive industries.
Literally, the Cambridge Dictionary defines a tax allowance as a sum of money taken from a taxpayer's income before his or her tax liability is calculated (Cambridge, 2023). On the other hand, the OECD defines a tax allowance as a reduction or exemption generally granted in the calculation of tax (OECD, 2023).
As explained above, one type of tax allowance is the provision of facilities in special economic zones (KEK). BKF said that until December 2022, the amount of tax expenditure in the form of tax allowances for Special Economic Zones (SEZs) in 2021 and 2022 was 11 billion rupiah (Fiscal Policy Agency, 2023). Furthermore, according to the BKF, taxpayers have only begun to utilize tax allowances in SEZs starting in 2021, even though the provision of tax allowances started in 2016.
Legal Basis
The legal basis for the granting of tax allowances for the Special Economic Zone can be found in Law Number 39 Year 2009 on Special Economic Zone. According to the law issued after the revision of the KUP Law, it regulates that Special Economic Zones are areas with certain boundaries within the jurisdiction of the unitary state of the Republic of Indonesia that are determined to carry out economic functions and facilitate certain licenses. There are seven zones in the SEZ, which include: export processing, logistics, industry, technology development, tourism, energy, and other economies.
Furthermore, Law No. 39/2009 also regulates that every taxpayer conducting business activities in SEZs is given facilities in the form of Income Tax (PPh). In addition, additional income tax facilities can also be provided in accordance with the characteristics of the zone. However, Law No. 39/2009 does not elaborate further on the type and mechanism of tax facilities for taxpayers conducting business in SEZs.
One of the technical provisions governing the provision of tax facilities for taxpayers doing business in SEZs is Government Regulation Number 96 of 2015 concerning Facilities and Easiness in Special Economic Zones as amended by Government Regulation Number 12 of 2020. Article 7 of Government Regulation 96 of 2015 in conjunction with Government Regulation 12 of 2020 regulates that business entities or business actors that invest in the main activities can obtain a reduction in corporate income tax on income received or obtained from the main activities carried out. The main activities are business fields and their production chains that become the focus of SEZs and are determined by the national council.
Furthermore, Article 10 of the same Government Regulation also regulates that business entities and business actors that invest in main activities that do not obtain corporate income tax reduction or invest in other activities can obtain income tax facilities as follows:
- A net income reduction of a maximum of thirty percent (30%) of the investment amount
- Accelerated depreciation and amortization
- The imposition of income tax on dividends is at ten percent (10%) unless the rate according to the applicable tax treaty is lower
- Longer loss compensation, but not more than ten years
However, in order to avoid redundancy in the provision of facilities, the provisions of Article 11 of Government Regulation No. 96 of 2015 regulate that if a business actor or entity has obtained an income tax reduction facility as referred to in Article 7, it is not entitled to obtain an income tax facility as referred to in Article 10. Vice versa, business actors who have obtained Article 10 facilities cannot utilize Article 7 tax facilities.
Another income tax facility offered by the government for investment in SEZs is related to income tax on the transfer of land and buildings. Article 13 of GR 96/2015 regulates that business entities or business actors conducting land acquisition transactions for SEZs, sales of land and buildings in SEZs and leases of land and buildings in SEZs are not subject to Income Tax on the sale or lease of land and buildings.
Conclusion
Reflecting on the low tax expenditure in the form of tax allowances in special economic zones, it can generally be concluded that the utilization of tax allowances in these areas is not optimal. The non-optimal utilization of facilities provided by the government in the SEZs is partly due to the incompatibility of the requirements and the tax allowance period with the online single submission (OSS) application, a lack of understanding of the apparatuses in the field and limited human resources (Kamalina, 2023). In fact, the SEZ National Council reported that out of 20 SEZ locations, only seven SEZs have been running optimally.
Therefore, in order to increase the optimization of tax expenditure in SEZs which ultimately increases the value of investment, there are basically several things that the government can do as a regulator. First, the government needs to adjust the provision of taxation facilities with technical applications. Second, the government needs to simplify the requirements for granting tax facilities in SEZs because taxpayers are often reluctant to get facilities due to the many requirements that must be completed. Third, the government needs to provide qualified human resources for providing services in SEZs. This is because the challenges and obstacles faced by business actors in SEZs have different characteristics compared to other business actors. So, in order to avoid capital outflow from SEZs, the officers in charge of SEZs must be able to be a solution to the problems faced by business actors.
This is the discussion on income tax facilities for investment in Special Economic Zones. In the next article, we will discuss the value-added tax facilities in the Zone.
References
Badan Kebijakan Fiskal. (2023). Laporan Belanja Perpajakan 2022. Jakarta: BKF.
Cambridge. (2023, October 28). Cambridge Dictionary. Retrieved from Cambridge DIctionary: https://dictionary.cambridge.org/dictionary/english/tax-allowance
Kamalina, A. R. (2023, April 21). Ternyata ini Penyebab Pengembangan KEK belum maksimal. Retrieved from Bisnis Indonesia: https://ekonomi.bisnis.com/read/20230414/9/1647012/ternyata-ini-penyebab-pengembangan-kek-belum-maksimal
OECD. (2023, October 28). Glossary of Tax Terms. Retrieved from OECD: https://www.google.com/search?q=tax+allowance+definition+oecd&client=firefox-b-d&sca_esv=577395672&sxsrf=AM9HkKlNlOtaMniPXyYQZObd7Ov_aLMp3A%3A1698479188136&ei=VLw8ZaD5B8jt4-EP762r8Ao&ved=0ahUKEwig86qFoJiCAxXI9jgGHe_WCq4Q4dUDCA8&uact=5&oq=tax+allowance+def
