Regulation on Details of Business Sectors and Types of Production of Pioneer Industries Entitled to Tax Holiday
The Indonesian Investment Coordinating Board (Badan Koordinasi Penanaman Modal/BKPM) has issued a new regulation on the details of the business sectors entitled to tax holiday facilities. Said regulation refers to the Indonesian Investment Coordinating Board Regulation No. 7 of 2020 concerning Details of Business Sectors and Types of Production of Pioneer Industries and Procedures for the Granting of Corporate Income Tax Reduction Facilities (BKPM Reg. 7/2020).
Corporate taxpayers performing new investments in pioneer industries may be given a corporate income tax reduction on income received or earned from their main businesses. As is well known, currently 18 pioneer industries may apply for a tax holiday to the government as regulated in the Minister of Finance Regulation No. 130/PMK.010/2020.
Details of the business sectors and types of production of each pioneer industry scope are listed in Appendix I which is an integral part of this regulation. Referring to the appendix, the government has expanded the business sectors entitled tax holiday facilities from 174 Indonesian Standard Business Classification (Klasifikasi Baku Lapangan Usaha Indonesia/KBLI) to 185 KBLI.
In comparison, the appendix of BKPM Regulation 7/2020 and the appendix of the former regulation, i.e. BKPM Regulation No. 9/2019, the KBLI covered in the agricultural, plantation, or forestry-based processing industry that produces pulp without or with their derivatives increases from 3 KBLI to 9 KBLI. Currently, the printing and writing paper industry, paper boards, paper boxes, and tissue paper which are integrated with the pulp producing industry are also entitled to the tax holiday facility.
Moreover, there are 3 new KBLIs in the category of organic basic chemical industry sourced from oil and gas and/or coal without or with their integrated derivatives. The 3 KBLIs include industries that produce polyethylene film, industries that produce asphalt, and industries that produce catalysts. Furthermore, 2 new KBLIs that are included in the appendix of the BKPM Reg. 7/2020 are industries that produce vitamins and industries of two or three-wheeled electric vehicles.
As is known, corporate taxpayers that apply for corporate income tax reduction must meet several criteria, i.e. classified as a pioneer industry, having status as an Indonesian legal entity, and performing new investments. On another note, corporate taxpayers must have a new investment plan of at least IDR100 billion, meet the provisions on the ratio between debt and capital, and be committed to realizing the investment plan.
For applicants whose business is not enlisted in the regulation, application can still be proposed through OSS by submitting research paper or report stating the fulfillment of pioneer industry criteria. The paper should include the explanation of production process, product scope, corporate income tax and value added tax paid after the tax facilitation is granted, and supporting data that is used to justify the fulfillment of the pioneer industry criteria.
Tax holiday applications can be submitted through the online single submission system using the application form listed in Appendix II of this regulation. If the tax holiday application meets the requirements, BKPM will verify the fulfillment of the document criteria. For verification of applications that have been declared complete and correct, BKPM will subsequently issue a receipt of the application in the format listed in Appendix VI of this regulation.
When this regulation came into effect, BKPM Regulation No. 6/2018 and BKPM Regulation No. 1/2019 were revoked and declared invalid. This regulation has taken effect as of 4 December 2020.