Tax Holiday in the Development of the New State Capital
Ideatax, Jakarta -- Recently, the Government Regulation Number 12 of 2023 concerning the Granting of Business Permits, Ease of Doing Business, and Investment Incentives to Entrepreneurs in Capital of Nusantara was issued. In its consideration, it is stated that the purpose of issuing the regulation is to provide ease of doing business and its investment for entrepreneurs and economic activity in the capital of Nusantara. Thus, the goal of realizing the State Capital or Ibu Kota Negara (IKN) as a sustainable city in the world, the heart of Indonesia's economy in the future can be realized.
For information, based on the official statement of IKN, it is stated that the development project of the IKN requires a budget of IDR 466 trillion consisting of state budget financing or Anggaran Pendapatan dan Belanja Negara (APBN) of IDR 89.4 trillion, public private partnership of IDR 253.4 trillion and financing of State-owned Enterprise or Badan Usaha Milik Negara (BUMN) and Provincially-owned Enterprise or Badan Usaha Milik Daerah (BUMD) amounting to IDR 123.2 trillion with the following details:
Source: IKN, 2023
There are three conveniences provided by the Government for entrepreneurs who plan to establish investments and or economic activities in the new state capital including business permitting, ease of doing business and investment facilities. Related to the taxation facility itself is regulated in the provisions of the investment facility.
Article 27 paragraph (1) of Government Regulation Number 12 of 2023 stipulates that there are nine Income Tax facilities provided by the Government to entrepreneurs who plan to invest or conduct economic activities in the state capital that are:
- Corporate Income Tax reduction facility for domestic taxpayers,
- Income tax facilities for financial sector activities in the financial center,
- Corporate Income Tax reduction facility for the establishment and or transfer of head offices and/ or regional offices,
- Gross income reduction facility for the implementation of PKL or internship activities,
- Gross income reduction facility for research and development activities,
- Gross income reduction facility on donations/ or costs of building public facilities or social facilities,
- Income Tax Article 21 DTP facility is final,
- Zero percent income tax facility on the circulation of certain businesses, and
- Income Tax reduction facility.
From the description above, it can be seen that the Government provides various kinds of tax incentives to encourage the acceleration of the development of the national capital. Moreover, if we look at article by article.
Article 29, for example, stipulates that the Government provides a reduction in Corporate Income Tax of 100% of the amount of Corporate Income Tax owed to taxpayers who invest in the IKN with a value Minimum investment of IDR 10 billion. This means that companies that invest in certain fields in IKN are not required to pay income tax for a certain period of time.
Investment in certain fields that receive income tax reduction facilities in IKN, including investment in construction and operation of electric power, toll roads, seaports, airports, supply of clean water, health facilities, education units and other public facilities.
In addition to the construction and operation of public facilities, social infrastructure for economic revival such as malls, hotels, MCE (meetings, conventions, and exhibitions) and gas stations are also granted with facilities to reduce corporate income tax by 100%.
The period of granting the tax holiday is also very interesting. On investments in infrastructure development and general services are provided with an income tax reduction of 100% for 20 to 30 years. Meanwhile, investment in the development of the economic revival business sector is given a reduction in corporate income tax for 10 to 20 years. Moreover, investment in other fields is given a facility to reduce corporate income tax for 10 years.
Substantially, the provision of income tax reduction facilities can be categorized as a tax holiday. According to Nar (2019), tax holiday can be defined as the abolition or reduction of taxes during a certain period aimed at increasing investment.
However, Mintz (1990) argues that the effectiveness of tax holiday on investments of the investors depends on how long the depreciation period of assets allowed in the investment. If asset depreciation is accelerated for taxation purposes, then the purpose of tax holiday to attract investors becomes ineffective. Especially at the end of the investment period. However, investors will be excited if depreciation is suspended until the tax holiday period ends.
With the various tax incentives offered by the government, the government hopes that various investors around the world will invest their funds in the prospective new state capital of Indonesia. Moreover, the Minister of Indonesian Investment Coordinating Board or Badan Koordinasi Penanaman Modal (BKPM) coordinator mentioned that as of October 2022, the value of investment commitments in IKN has reached USD 20 million or equivalent to IDR 312 trillion (CNBC Indonesia, 2022).
CNBC Indonesia. (2022, March 15). Bahlil said that RI has pocketed hundreds of trillions of IKN investments. Retrieved from CNBC Indonesia: https://www.cnbcindonesia.com/news/20221024112916-4-382035/bahlil-sebut-ri-sudah-kantongi-ratusan-triliun-investasi-ikn
IKN. (2023, March 14). KSP: The construction of a new state capital requires a budget of IDR 466 trillion, not all of which are covered by the state budget. Retrieved from The State capital of Nusantara: https://ikn.go.id/ksp-pembangunan-ibu-kota-baru-perlu-anggaran-IDR-466-t-tak-semua-ditanggung-apbn
Mintz, J. M. (1990). Corporate Tax Holidays and Investment. The World Bank Economic Review, 4(1), 81-102. doi:https://doi.org/10.1093/wber/4.1.81
Nar, M. (2020). Tax Holiday as an Incentive Policy Tool. Journal of Economics and Public Finance, 6(1), 1-6. doi:https://doi.org/10.22158/jepf.v6n1p1
- Law Number 3 of 2022 concerning State Capital
- Government Regulation Number 12 of 2023 concerning the Granting of Business Permits, Ease of Doing Business, and Investment Incentives to Entrepreneurs in Capital of Nusantara
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