The Indonesian government issued Regulation 29 of 2020 (Reg 29/2020) in mid-June, which grants tax deductions and incentives for individuals and businesses who have supported the government’s fight against the COVID-19 pandemic.

The regulation stipulates that eligible individuals and businesses are those who have provided financial and non-financial donations, human resources support for the medical sector, contributed medical devices and equipment, and the repurchase of shares through the Indonesian Stock Exchange, among others.

Indonesia’s previous tax incentives were focused on helping 18 selected industries mitigate the economic impact caused by the pandemic. This included reducing the corporate income tax (CIT) rate from 25% to 22% for the 2020-2021 tax year. Furthermore, employees working in these industries earning less than 200 million rupiah (US$13,900) per annum are exempted from paying income tax.

Producers of Medical Devices, Household Health Supplies

Under Reg 29/2020, domestic taxpayers receive a net income reduction of 30% of the costs incurred to produce medical devices or household health supplies to fight COVID-19. This will reduce the amount of income tax the taxpayer needs to pay.

The medical devices mentioned in the regulation included the following:

• Surgical masks and N95 respirators
• Personal protective equipment in the form of heavy-duty aprons, goggles, face shields, medical coveralls, surgical caps, shoe covers, and waterproof boots
• Examination gloves
• Surgical gloves
• Ventilators
• Diagnostic test reagents for COVID-19

Household health supplies covered the following categories:

• Antiseptic hand sanitizers
• Disinfectants

To be eligible, the taxpayer needed to submit an expense report to the Directorate-General of Tax either through its e-service system or by going to the tax office where the taxpayer is registered. The taxpayer must also submit their annual tax return for the relevant tax year.

This incentive was available until 30 September.

Donations Are Now Tax-Deductible

Domestic taxpayers who have donated to the National Disaster Management Agency (BNPB), any Regional Disaster Management Agency, the Ministry of Health, the Ministry of Social Affairs, or other institutions and organizations appointed by the government to combat COVID-19 can deduct the value of their contributions from their income tax bill.

For taxpayers donating to organizations that are not government agencies, they must have ensured such organizations have a mandate from the government and possess a tax identification number. They must also have provided a receipt of proof of payment.

The type of donations falls under the following criteria:

• Monetary
• Goods
• Services
• The use of assets (without compensation).

The value of donations made in the form of goods was determined by:

• The acquisition value—if the donated goods have not depreciated
• Book value—if the donated goods have depreciated
• The cost of the goods sold—if the goods are self-produced

For the value of donations made in the form of services, these were based on the value of the costs of the service and/or the use of the assets.

Taxpayers needed to submit proof of donations to the Directorate-General of Tax along with their annual tax return for the relevant year.

Leasing Assets (With Compensation)

Taxpayers who leased their lands, buildings, and other assets to the government to mitigate COVID-19 will pay no taxes on the rent incurred as regulated in government regulation 34 of 2017.

This incentive was available until 30 September.

Public Companies to Pay Lower Tax Rates

Listed companies on the Indonesian Stock Exchange that buy back shares are eligible for CIT rates that are 3% lower than those stipulated in the National Economic Recovery (NER) program.

Under the NER, the government has lowered the CIT rate for the 2020-2021 fiscal year from 25% to 22%. The rate will fall again to 20% for the 2022 fiscal year.

Listed companies, however, can immediately enjoy a 19% CIT rate for the 2020-2021 fiscal year and 16% for 2022.

To be eligible, only listed companies that have more than 40% of their total shares traded on the exchange can benefit from the tax cut. Moreover, these companies must have at least 300 separate parties that own the shares at no more than 5% ownership each. These other owners must not be affiliated with the listed company or with each other.

No Income Tax for Health Workers

Health workers assigned to COVID-19 cases will not have to pay income tax on their salaries or bonuses. This covers doctors, nurses, ambulance drivers, and administrative staff, among others.

This article was first published by ASEAN Briefing, which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in China, Hong Kong, Vietnam, Singapore, India, and Russia. Readers may write to [email protected] for more support.