Tax reform includes rate increases and tax amnesty
Indonesia’s president ratified a tax bill on 29 October 2021 that increases taxes, provides for a tax amnesty and introduces a new carbon tax. The law is designed to provide more tax revenue to compensate for losses incurred during the COVID-19 pandemic and improve tax compliance overall.
The corporate income tax rate, which was expected to be reduced to 20%, will remain at 22%.
Effective fiscal year 2022, the lowest tax bracket cap for individual income tax will be increased from IDR 50 million to IDR 60 million and a new 35% tax bracket will be added for individuals earning more than IDR 5 billion annually. The progressive rate brackets will be structured as follows:
The standard VAT rate will be subject to a phased-in increase from 10% to 11% and 12%. The 11% rate will apply as from 1 April 2022 and the 12% rate will become effective no later than 1 January 2025.
The bill establishes a tax amnesty program that will allow individual and corporate taxpayers to disclose under-reported or undeclared assets on a self-assessment basis and settle the tax amnesty levy. The salient features of the program, which will run during the period 1 January 2022 through 30 June 2022, are as follows:
Cooperation in tax collection assistance and prevention of BEPS
The Indonesian government will be authorised to enforce bilateral and multilateral agreements with governments or organizations of partner countries or jurisdictions to prevent double taxation and/or tax evasion, prevent tax base erosion and profit shifting (BEPS), exchange tax and financial information, provide assistance in tax collection and any other tax cooperation activities.
As part of Indonesia’s commitment to reduce greenhouse gases, on 1 January 2022, a new carbon tax would be imposed on carbon emissions that have negative impact on the environment. The tax would be levied on individuals or entities that purchase goods containing carbon and/or conduct activities that generate carbon emissions. That tax would be due at the time goods containing carbon are purchased, at the end of a calendar year for activities generating a certain amount of carbon emissions or other periods that will be specified in government regulations.