Tax Saving Strategy through the Application of a Certificate of Exemption for Import Income Tax Article 22

Overview
As is known, Income Tax Article (ITA) 22 on imports collected by the Directorate General of Customs and Excise will be calculated as a tax credit on income tax payable after the end of the year. If the DGT has collected Income Tax Article 22 and the taxpayer has no income tax payable, such as in newly established PMA and PMDN companies that are still in the investment stage, then the Income Tax Article 22 that has been collected must be refunded or restituted to the taxpayer. However, of course, these companies must import capital goods. Upon the entry of the imported capital goods, the taxpayer will still be subject to income tax under Article 22. This is certainly very burdensome for the taxpayer.

To overcome this, PMA and PMDN companies can apply for a Certificate of Exemption (SKB) of Income Tax Article 22 on imports as stipulated in Circular Letter of the Director General of Taxes Number SE 30/PJ.64/1985 with the following provisions:

1. The company is a newly established PMA or PMDN company (not an expansion or reinvestment of past years' profits);
2. Limited to capital goods mentioned in the Master List as an attachment to the Permanent Approval Letter issued by BKPM and raw material needs for 1 (one) year approved by BKPM;
3. The SKB on Income Tax Article 22 on Imports issued for the first time covers the period from the establishment of the company until December 31 of the year of establishment;
4. For years after the year of establishment, the taxpayer must reapply for exemption from ITA 22 on Imports, accompanied by a detailed list of remaining capital goods authorized by BKPM. The issuance of SKB of Income Tax Article 22 on Import is conducted by taking into account the Annual Income Tax Return submitted by the taxpayer for the previous fiscal year. If the Income Tax Return states that there is no Income Tax payable, the SKB of Income Tax Article 22 on Import can be issued for one year (until December of the year concerned).
5. The authority to issue SKB PPh Article 22 Import lies with the Head of Tax Inspection in the area where the taxpayer is registered as an income taxpayer.

 

Discussion

With the SKB, taxpayers can certainly save their finances. As an illustration of the nominal amount that can be saved by taxpayers, we use data on the net import value in 2023 published by the Central Bureau of Statistics which amounted to USD 221,886,223,535. Based on the import value, the estimated Income Tax 22 on imports paid is USD 18,593,330,482. In calculating the estimated Income Tax 22 paid, we use the Minister of Finance Regulation (PMK) Number 41/PMK.010/2022 as a reference. If the 2-digit Harmonized System Code (HS Code) listed in the import data is not regulated in the PMK Appendix, we use the assumption that the imported goods do not use an Import Identification Number (API), so we use a rate of 7.5% (seven point five percent) as a reference in calculating Income Tax 22 on Imports.

Based on the results of the above calculations (assuming all importers who import goods get the SKB PPh 22 Import), it can be known with certainty how much savings are experienced by importers, which is USD 18,593,330,482.

Based on Foreign Investment Realization data for 2022 and 2023 and Domestic Investment Realization data for 2022 and 2023, there is an increase of 10% in 2023 for Foreign Investment Realization and an increase of 22% in 2023 for Domestic Investment Realization. This additional investment indicates the potential for new companies that import to utilize the SKB PPh 22 Import facility.

 

Conclusion
With the mechanism for submitting SKB PPh 22 on imports regulated in SE 30/PJ.64/1985, newly established PMA and PMDN companies that are still in the investment stage can take advantage of the facilities provided by the Directorate General of Taxes (DGT). Of course, this can help companies reduce expenses and also finance the company's operations.

Appendix - Import Data Based on 2-Digit Harmonized System Codes for 20231