Page 9 - Working Paper (Tax Incentives: An Alternative to Revenue Enhancement)
P. 9

DDTC Working Paper 1115

                                       Figure 2 - Current Account and Foreign Direct Investment (%GDP)



                                         2005  2006  2007  2008  2009  2010  2011   2012  2013

                                              Foreign direct investment,   Current account
                                              net inflows (% of GDP)    balance (% of GDP)

                                                 Source: World Development Indicators, the World Bank, 2015

                   billion in July 2013, and the consequent increase   the facilities in 1984. By looking at Figure 2, it is
                   in the VAT registration threshold to IDR 4.8 billion   obvious that external and domestic macroeconomic
                   may  have  negatively  impacted  both  Corporate   conditions play a major role in determining number
                   Income Tax (CIT) and VAT collection . For 2015,   of FDI. Association between increasing numbers of
                   the Government sets a target of IDR 1,762 trillion   tax  incentive  regulations  enacted  and  FDI  is  not
                   from tax revenue as stated in the revised budget. It   fully comprehensible and needs further research.
                   requires extra efforts that in the Financial Note of
                                                                       The Government of Indonesia recently enacted
                   the Revised Budget states increased effectiveness
                                                                    the new Regulation No. 18/2015 on tax allowances
                   and efficiency in collection, resting on institutional
                                                                    for  new  investment  in  certain  business  and/or
                   and  organizational  improvements,  including
                                                                    regions. The Government is offering various type of
                   improved  human resource  and IT capacity, and
                                                                    tax incentives such as tax holidays; tax allowances
                   better exchange of information with other agencies
                                                                    for investment  in  certain business sectors or
                   and institutions. On the tax policy side, numerous
                                                                    regions;  simplification  of  income  tax  calculation
                   announcements have been made regarding policy
                                                                    with certain amount of gross income; income tax
                   measures that the government is considering
                                                                    reductions for publicly listed companies; and tax
                   that includes a travel ban and jailing of large tax
                                                                    reductions for resident corporate taxpayers. Scopes
                   debtors, the possibility of tax amnesty, and increase
                                                                    of new/pioneer industries that are eligible to tax
                   in  mining  royalty  rates, and  the introduction of
                                                                    holidays are basic metal industries, oil refineries,
                   new taxes on new oil and gas production sharing
                                                                    oil and gas source-based  organic chemicals,
                   contract (PSC) holders.
                                                                    machinery, renewable  resource  industries,  or
                      Current  account  deficit  narrowed  from  more   telecommunication equipment. The  companies
                   than  3 percent in 2013  to around 2.8 percent of   must be newly established  and conduct their
                   GDP  in  2014.  However,  both  exports  and  import   business within the abovementioned scopes. The
                   were declined  by 10.4  percent and 5.9  percent   main requirement is the company needs to make
                   respectively in quarter 4 2014.  The continued   investment  of  IDR1  trillion  at  minimum.  As  part
                   weakness in exports and imports is consistent with   of  this  facility,  Directorate  General  of  Tax  (DGT)
                   soft external  and domestic demand conditions.   will exempt the companies from paying corporate
                   In  addition,  both  net  FDI  and  portfolio  inflows   income tax for about 5 to 10 years, from the start-
                   were surging  and start  diminishing  in quarter 4   up of initial production, a 50 percent tax reduction
                   compared to the previous four quarter.  The impact   for two years after the tax holidays period ends and
                   of granting tax facilities during 2005-2013 on FDI   subject  to extension with  further  consideration
                   was not completely clear. The FDI increased with   from the DGT.
                   or  without the tax  incentives.  These  conditions
                                                                       Under the new regulation, furthermore, it states
                   also happened before the Asian Crisis. For example,
                                                                    that 66 business sectors and 77 business sectors
                   the  FDI  in  Indonesia  increased  significantly  after
                                                                    in certain regions are eligible for tax allowances.
                                                                    In order to receive the allowance, DGT scrutinize
                   20 The World Bank,” Indonesia Economic Quarterly: High Expectations”,
                   March 2015.                                      the eligible  recipients by their  investment plan,
   4   5   6   7   8   9   10   11