Fiscal Implications of a 0 Percent Final Income Tax on SOE Restructuring

The government, through the Indonesia Investment Management Agency (BPI Danantara), is consolidating state-owned enterprises (SOEs), aiming to reduce the number of entities from 1,074 to around 250. In mergers, acquisitions, and consolidations, taxing asset transfers at market value can create cash flow burdens that hinder corporate efficiency and restructuring.

The Directorate General of Taxes (DGT) has indicated the availability of a 0% final income tax facility for certain transactions involving SOE restructuring. The facility is reflected in the addition of six tax object codes to the annex of Director General of Taxes Regulation No. PER-12/PJ/2026. However, its implementation still requires a legal basis in the form of a government regulation (PP) and a finance minister regulation (PMK), both of which are currently being drafted.

Tax Object Codes

PER-12/PJ/2026 governs adjustments to tax reporting through the Coretax tax administration system, including the addition of six tax object codes for SOE restructuring transactions. The provisions are intended to support ownership restructuring, asset transfers, and the settlement of financial obligations during the consolidation process.

Tax object code 28-408-07 concerns the tax treatment of gains arising from debt forgiveness. Under Article 4 paragraph (1) letter k of the Income Tax Law, gains from debt forgiveness are generally subject to income tax, subject to exemptions under applicable regulations.

This provision is particularly relevant to SOEs with high debt burdens, including companies in the construction and pharmaceutical sectors. During restructuring, a partial debt haircut or debt-to-asset conversion may be used to improve a company's capital structure.

For illustration, if a creditor forgives Rp1 trillion in debt owed by an SOE and the resulting gain is subject to the corporate income tax rate of 22%, the tax liability could reach Rp220 billion. This burden could reduce the liquidity the company needs to restore its financial health.

The government cannot unilaterally eliminate tax liabilities without a legal basis. Therefore, the 0% final income tax facility for gains from debt forgiveness in SOE restructuring must be clearly regulated to ensure legal certainty and implementation in accordance with the prescribed requirements.

Use of Book Value

The 0% final income tax facility needs to be distinguished from the facility allowing the use of book value. Both can support restructuring, but they operate through different mechanisms and have different tax implications.

Finance Minister Regulation No. 1 of 2026 amends the provisions of Finance Minister Regulation No. 81 of 2024 and replaces the previous framework under Finance Minister Regulation No. 56 of 2021. The book value facility allows certain asset transfers in restructuring transactions to be carried out at book value rather than market value, provided the applicable requirements are met.

This mechanism can defer the recognition of gains for tax purposes. As a result, qualifying restructuring transactions do not automatically trigger tax liabilities based on the difference between an asset's market value and book value.

PMK 1/2026 expands the scope of the definition of SOEs to include entities that meet the criteria for state ownership or special rights as stipulated in the relevant provisions. The regulation also adjusts the approval mechanism for the use of book value in SOE restructuring to account for BPI Danantara's role.

The expanded scope and adjusted authority must be implemented in accordance with applicable regulations to avoid uncertainty in determining which entities are eligible for the facility.

The book value facility requires a demonstrable business purpose through a business purpose test (BPT). This requirement is intended to ensure that restructuring is undertaken for legitimate business reasons rather than solely to obtain tax benefits.

Under the provisions referenced in this article, the business continuity period has been reduced from five years to four years from the effective date of the restructuring. Meanwhile, restrictions on the transfer of fixed assets remain in place for at least two years, subject to exceptions under applicable regulations, including those for operational efficiency.

If the requirements for using book value are not met, approval for the facility may be revoked in accordance with applicable regulations. The consequences may include recalculating the transfer value based on market prices at the time of the transaction, as well as settling the outstanding income tax and administrative penalties.

Companies therefore need to ensure that their business objectives, transaction documentation, and compliance with business continuity requirements are properly documented.

Administrative Implications of PER-12/PJ/2026

In addition to introducing tax object codes, PER-12/PJ/2026 adjusts tax reporting procedures through Coretax. These changes are relevant to SOEs undergoing changes in ownership structure, business mergers, or tax administration following restructuring.

Coretax applies a replace mechanism when taxpayers amend their tax returns (surat pemberitahuan/SPT). Under this mechanism, an amended return replaces the previous return in its entirety, unlike a mechanism that records only changes or differences in the data.

Implementing this mechanism requires careful reconciliation of previous tax payments and refunds to prevent errors in calculating tax liabilities.

PER-12/PJ/2026 also provides for the appointment of one or more officials or employees authorized to sign electronic tax withholding slips through Coretax. This provision can help companies manage tax withholding administration, particularly following mergers or organizational restructuring.

These administrative adjustments still require adequate internal controls to ensure data accuracy, proper signing authority, and compliance with reporting requirements.

Level Playing Field

The 0% final income tax incentive and the facilitation of book value transfers with BPI Danantara's approval raise questions about equal tax treatment between SOEs and private companies. Private taxpayers undertaking business restructuring remain subject to general tax provisions, including potential income tax on gains from asset or share transfers.

The difference in tax treatment can be explained by the role of SOEs in fulfilling public service obligations and maintaining national economic stability. The government also expects SOE restructuring to increase contributions to the state budget (APBN) through dividends and more efficient management of state assets.

However, tax facilities must still take fair competition into account. Significant differences in tax burdens can affect cost structures and product prices, potentially giving SOEs an advantage over private companies operating in the same sectors.

The government must therefore oversee restructuring to ensure that tax savings are used in line with policy objectives. Oversight is also needed to prevent predatory pricing practices intended to drive competitors out of the market.

Implications for the Economy and Investment

BPI Danantara was established to manage investments and optimize state assets. Tax facilities for SOE restructuring could affect investment, banking liquidity, and business competition through several mechanisms.

1. Potential to Attract More Foreign Investment

Investors need legal certainty, clear ownership structures, and adequate financial information before committing capital. Tax burdens arising from restructuring can affect transaction costs and investment viability.

If implemented under a clear legal framework, tax facilities and the use of book value could reduce these barriers. This could facilitate the establishment of joint ventures, partial divestments, and initial or subsequent public offerings through the capital market.

However, increased investment will still depend on the quality of corporate governance, business prospects, regulatory certainty, and market conditions.

2. Impact on Banking Liquidity

SOE debt restructuring can affect the quality of banking assets, particularly when it involves companies with substantial liabilities to state-owned banks. Successful restructuring could improve borrowers' ability to meet their obligations and reduce the risk of non-performing loans.

Such improvements could support lending to productive sectors. However, the impact on banking liquidity and financing for micro, small, and medium enterprises (MSMEs) and private companies will depend on banks' financial conditions, loss provisions, and credit demand.

3. Market Concentration Risks

SOE consolidation can increase economies of scale and strengthen companies' positions in procurement, financing, and strategic project implementation. However, concentrating economic activities within business groups managed by Danantara could also limit private companies' access to financing, projects, and investment opportunities.

The government must ensure that consolidation does not create barriers to market entry or undermine competition. Procurement policies, access to financing, and competition oversight should be implemented transparently and consistently.

Recommendations

The 0% final income tax facility for certain SOE restructuring transactions could reduce direct tax burdens and support improvements in corporate financial structures. However, the policy's effectiveness will depend on legal certainty, compliance with eligibility requirements, implementation oversight, and assessments of its fiscal impact.

Growth in tax revenue in the first half of 2026 could serve as one consideration, but it is not sufficient to establish that the government has adequate fiscal space. The government needs to estimate potential foregone revenue and compare it with the expected economic benefits of restructuring.

To ensure effective implementation, three key recommendations should be considered.

1. Clarify the Legal Basis for Tax Facilities

The Ministry of Finance needs to finalize and issue implementing regulations that provide the legal basis for the 0% final income tax facility. These provisions should specify eligible transaction types, the scope of eligible taxpayers, application procedures, and oversight mechanisms.

This clarity is necessary to ensure that the tax object codes under PER-12/PJ/2026 are used in accordance with the applicable legal framework and do not give rise to differing interpretations.

2. Ensure Compliance with the Business Purpose Test

SOEs undergoing restructuring should document their business objectives, projected benefits, and the impact of transactions on corporate performance. The documentation must demonstrate that restructuring is intended to improve efficiency and business performance, rather than solely to obtain tax benefits.

Companies must also comply with business continuity and asset transfer requirements. Non-compliance could result in the revocation of tax facilities and recalculation of tax liabilities in accordance with applicable regulations.

3. Strengthen Tax Administration through Coretax

SOEs need to adjust their tax administration following restructuring, including updating taxpayer data, reconciling tax liabilities and payments, and designating officials authorized to sign electronic tax withholding slips.

Internal controls should be strengthened to ensure accurate and timely reporting through Coretax. These measures can also help reduce administrative errors during the consolidation process.

The success of tax facilities for SOE restructuring should be assessed based on their economic benefits, legal certainty, impact on state revenue, and ability to maintain fair business competition.

Also Read:

Tax Brief PER-12/PJ/2026: Changes to the Tax Return Amendment Process
Tax Exemptions for SOE Consolidation: Rules and Implications
DGT Eyes IDR 500 Trillion from SOEs Through Cooperative Compliance
 

Writer: Ideatax | Editor: Thomas Rizal