Minister of Finance Sri Mulyani Indrawati has released an implementing regulation of the taxation cluster in Law No. 11 of 2020 concerning Job Creation (Job Creation Law). Said implementing regulation is outlined in the Minister of Finance Regulation No. 18/PMK.03/2021 concerning the Implementation of Law No. 11 of 2020 concerning Job Creation in the Fields of Income Tax, Value Added Tax, and Sales Tax on Luxury Goods, as well as General Tax Provisions and Procedures (MoF Reg. 18/2021).
Taking effect as of 17 February 2021, the regulation consists of 119 articles which are segmented into six chapters. The enactment of MoF Reg. 18/2021 simultaneously revokes the former three regulations. First, the Minister of Finance Regulation No. 151/PMK.03/2013 concerning Procedures for the Preparation and Procedures for the Correction or Replacement of Tax Invoices (MoF Reg. 151/2013).
Second, the Minister of Finance Regulation No. 226/PMK.03/2013 concerning Procedures for the Calculation and Granting of Interest Compensation (MoF Reg. 226/2013) as amended by Minister of Finance Regulation No.65/PMK.03/2018 (MoF Reg. 65/2018). Third, the Minister of Finance Regulation No. 31/PMK.03/2014 concerning the Calculation Period and Procedures for the Refund of Credited Input VAT and Refunds for Taxable Persons for VAT Purposes Experiencing a Production Failure (MoF Reg. 31/2014).
The scope of elucidation in MoF Reg. 18/2021, in essence, includes provisions in the areas of Income Tax, Value Added Tax (VAT), and Sales Tax on Luxury Goods (STLGs), as well as General Tax Provisions and Procedures (Ketentuan Umum dan Tata Cara Perpajakan/KUP).
Provisions related to Income Tax
Provisions related to income tax are listed in Chapter II of MoF Reg. 18/2021. The provisions stipulated in Chapter II concerning Income Tax are, in essence, an affirmation and detail of Article 2 paragraph (4), Article 4 paragraph (1d), and Article 4 paragraph (3) subparagraphs f, o, and p of Income Tax Law as amended by Job Creation Law. The elucidation related to the income tax provisions is segmented into five sections.
The first section, stipulates the requirements of an individual tax subject. This section outlines the provisions on individuals, both Indonesian Citizens (Warga Negara Indonesia/WNI) and Foreign Citizens (Warga Negara Asing/WNA) who are deemed resident tax subjects. Moreover, there are also details concerning the provisions on individuals considered non-resident tax subjects.
The second section, stipulates the criteria for certain expertise and procedures for income tax imposition on WNA. This section constitutes a detail of the provisions on income tax facilities for WNA with certain expertise who have become resident tax subjects as stipulated under Article 4 paragraph (1a), paragraph (1b), paragraph (1c), and paragraph (1d) of Income Tax Law as amended by Job Creation Law.
Further, Article 7 of MoF Reg. 18/2021 outlines WNA with certain expertise including foreign workers who occupy certain positions as stipulated by the Minister of Manpower and foreign researchers stipulated by the minister in the research sector. The provisions concerning these certain positions are listed in Appendix II of MoF Reg. 18/2021. Referring to the appendix, these certain positions consist of 25 positions including chemists, geologists and geophysicists, telecommunication engineers, product and apparel designers, university lecturers, application programmers, and mining supervisors.
On another note, the provisions regarding the criteria for certain expertise include having expertise in the fields of science, technology, and/or mathematics, as evidenced by three things: (i) a certificate of expertise issued by an institution appointed by the Government of Indonesia or the government of the foreign worker’s country of origin; (ii) education certificate; and/or (iii) a minimum of five-year work experience. WNA with certain expertise are obliged to transfer knowledge.
The third section, stipulates the procedures and specific timeframes for investment, procedures for exemptions from income tax on dividends or other income exempted from tax objects, as well as changes to the threshold of invested dividends. This section outlines, among others, 12 criteria for the forms of investment that taxpayers wishing to take advantage of the income tax exemption on dividends may choose.
The fourth section, regulates the deposit funds for hajj fees and/or special hajj fees and income from the development of hajj finance in certain financial sectors or instruments that are exempted from income tax objects. This section specifies, among others, the forms of income categorized as income from the development of financial hajj on certain financial instruments, which include, among others, yields on demand deposits, time deposits, and savings deposits at Bank Indonesia; state sharia bonds and securities (Sukuk dan Surat Berharga Syariah Negara/SBSN); sharia collective investment contracts; sharia mutual fund yields.
The fifth section, stipulates the surplus received or earned by social and/or religious bodies or institutions that are exempted from income tax objects. This section, among others, specifies the main activities carried out by social agencies or institutions, including free health care, care for the elderly or nursing homes and care for orphans, abandoned children or people, and disabled children or people.
Provisions related to VAT and STLGs
Provisions related to VAT and STLGs are listed in Chapter III of MoF Reg. 18/2021. Broadly speaking, the provisions stipulated in Chapter III concerning VAT and STLGs constitute an affirmation and detail of Article 9 paragraph (13) subparagraphs a, b, c, and e, as well as Article 13 paragraph (5a) and paragraph (8) of VAT Law as amended by Job Creation Law. The elucidation concerning VAT and STLGs provisions is segmented into four sections.
The first section, stipulates the criteria for not yet supplying taxable goods (Barang Kena Pajak/BKP) and/or taxable services (Jasa Kena Pajak/JKP) and/or BKP and/or JKP exports, the stipulation certain business sectors, as well as procedures for refunds of input VAT.
The second section, stipulates the procedures for input VAT crediting. The third section, regulates the procedures for the preparation of tax invoices and the procedures for the correction or replacement of tax invoices. The second and third sections define and outline the provisions related to input VAT crediting and the preparation of tax invoices that were formerly revised in Job Creation Law.
The fourth section, tax invoices for Retail Trade Taxable Enterprises (Pengusaha Kena Pajak Pedagang Eceran) that supply BKP and/or JKP to buyers with the characteristics of end consumers. This section expands the definition of Retail Trade Taxable Enterprises which now also includes supplies of taxable goods (Barang Kena Pajak/BKP) and/or taxable services (Jasa Kena Pajak/JKP) through Trade through Electronic Systems (Perdagangan Melalui Sistem Elektronik/PMSE). On another note, this section outlines the characteristics of end consumers.
Provisions related to KUP
Provisions related to KUP are listed in Chapter IV of MoF Reg. 18/2021. In general, the provisions stipulated in Chapter IV regarding KUP constitute an affirmation and detail of Article 9 paragraph (3a), Article 9 paragraph (4), Article 13 paragraph (6), Article 14 paragraph (6), Article 15 paragraph ( 5), Article 17B paragraph (1a), Article 27B paragraph (8), and Article 44B paragraph (3) of General Tax Provisions and Procedures Law as amended by Job Creation Law. The elucidation related to the KUP provisions is segmented into seven sections.
The first section, stipulates the procedures for the granting of interest compensation. This section describes the conditions rendering interest compensation for taxpayers with regard to income tax, VAT, STLGs, and Land and Building Tax (Pajak Bumi dan Bangunan/PBB) along with details of their provisions. In essence, nowadays interest compensation is no longer granted at a 2% rate per month. As per the new provisions, interest compensation is now based on the monthly interest rate stipulated by the Minister of Finance. In addition, this section specifies the series of processes for the granting of interest compensation, ranging from the submission of applications to the calculation of interest compensation.
The second section, stipulates the procedures for the payment and remittance of taxes. This section contains several amendments to the provisions in the Minister of Finance Regulation Number 242/PMK.03/2014 concerning Procedures for Tax Payment and Remittance (MoF Reg. 242/2014). The most significant changes can be found in the provisions relating to installments and postponement of tax payments.
Taxpayers that apply for installments or postponement of tax payments must now attach evidence of liquidity problems or circumstances beyond their control in the form of interim financial statements, financial statements, or notes regarding gross revenues or turnover and/or gross income. Provisions on the attachment of evidence have actually been regulated in MoF Reg. 242/2014. The forms of evidence to be attached by taxpayers, however, have not been explicitly stated.
On another note, taxpayers that apply for installments or postponement of tax payments are now required to provide collateral in the form of tangible assets. This is different from the previous provisions which required taxpayers to provide guarantees in the form of bank guarantees, letters/documents evidencing ownership of movable property, debt coverage by third parties, land certificates, or certificates of deposit. The provisions on the period for filing applications as well as the deadline for installments and postponement of tax payments have also been revised.
The third section, stipulates Tax Returns (Surat Pemberitahuan/SPT). This section contains a number of changes in the Minister of Finance Regulation No. 243/PMK.03/2014 concerning Tax Returns (MoF Reg. 243/2014) as amended by the Minister of Finance Regulation No. 9/PMK.03/2018 (MoF Reg. 9/2018). This section, in essence, revises the provisions on the imposition of interest penalties on taxpayers that self-correct their Periodic/Annual Tax Returns and resulting in a higher tax liability. The interest penalties are now imposed based on the monthly interest rates set by the Minister of Finance.
The fourth section, stipulates audit procedures. This section contains several changes in the Minister of Finance Regulation No. 17 /PMK.03/2013 concerning Audit Procedures (MoF Reg. 17/2013) as amended by the Minister of Finance Regulation No. 184/PMK.03/2015 (MoF Reg. 184/2015). The changes are mainly related to audits to test compliance with tax obligations as there are concrete data that causes the tax payable to be unpaid or underpaid. Moreover, there are also adjustments to the preliminary- investigation-related provisions.
The fifth section, stipulates the procedures for the issuance of Notices of Tax Assessment (Surat Ketetapan Pajak/SKP) and Notices of Tax Collection (Surat Tagihan Pajak/STP). This section contains changes to several provisions under the Minister of Finance Regulation No. 145/PMK.03/2012 concerning Procedures for the Issuance of Notices of Tax Assessment and Notices of Tax Collection (MoF Reg. 145/2012) as amended by the Minister of Finance Regulation No. 183/PMK.03/2015 (MoF Reg. 183/2015).
The most significant changes are related to the elimination of the articles concerning the issuance of Notices of Tax Underpayment Assessment (Surat Ketetapan Pajak Kurang Bayar/SKPKB) or Notices of Additional Tax Underpayment Assessment (Surat Ketetapan Pajak Kurang Bayar Tambahan/SKPKBT) after the expiry of taxes, in the event the taxpayer is convicted in the field of taxation. In addition, there are adjustments to provisions concerning the basis for the issuance of SKPKB, SKPKBT, Overpayment Tax Assessment (Surat Ketetapan Pajak Lebih Bayar/SKPLB), Notices of Tax Collection (Surat Tagihan Pajak/STP), and repeated audits.
The sixth section, stipulates the procedures for preliminary investigations of crime in the taxation sector. This section contains several provisions in the Minister of Finance Regulation No. 239/PMK.03/2014 concerning Procedures for Preliminary Investigations of Crime in the Field of Taxation (MoF Reg. 239/2014). One of the outlined changes is related to the basis for preliminary investigations. On another note, the period of preliminary investigations may now be extended for a maximum of 12 months. Formerly, the period of preliminary investigations could be extended for 24 months.
The seventh section, stipulates the amendments to several provisions in the Minister of Finance Regulation No. 55/PMK.03/2016 concerning Procedures for Requests to Terminate Investigations of Crime in the Field of Taxation for State Revenue Purposes (MoF Reg. 55/2016). The changes in this section relate to the lowering of the amount of the sanctions in Article 44B of the General Tax Provisions and Procedures Law. The provisions in Article 44B of the General Tax Provisions and Procedures Law Law, in essence, regulate the Minister of Finance’s authority to ask the attorney general to terminate investigations of crime in the field of taxation for state revenue purposes.
Taxpayers may submit a request for termination of investigations to the Minister of Finance after paying unpaid or underpaid taxes/taxes that should not have been refunded. Taxpayers are also subject to a fine of three times the amount of unpaid or underpaid taxes/taxes that should not be refunded. The penalty is lower than the former provision, i.e. four times the amount of unpaid or underpaid taxes or taxes that should not have been refunded.