In response to the COVID-19 pandemic, the Indonesian Minister of Finance ("MOF") has issued a regulation on tax incentives aimed at stabilizing the economy and encouraging productivity in certain business sectors. This is in addition to the tax policies and relief provided by the Government under Government Regulation in Lieu of Law No. 1 of 2020 regarding State Financial Policy and Financial System Stability for the Management of the Coronavirus or COVID-19 Pandemic and/or in Facing Threats to the National Economy and/or Financial System Stability ("GR 1/2020").

MOF Regulation No. 44/PMK.03/2020 regarding Tax Incentives for Taxpayers Affected by COVID-19 ("MOF Reg. 44/2020") came into force on April 27, 2020, and revoked the previously applicable MOF Regulation No. 23/PMK.03/2020 ("MOF Reg. 23/2020") on the same matter. The implementation of MOF Reg. 44/2020 is further clarified by Directorate General of Tax ("DGT") Circular Letter No. SE-29/PJ/2020 of 2020 regarding Implementing Guidelines for MOF Reg. 44/2020 ("DGT CL 29").

MOF Reg. 44/2020 sets out tax incentives designed to help taxpayers manage cashflow during the uncertain times brought about by COVID-19 and to help individual taxpayers in certain sectors. We look at the incentives provided by MOF Reg. 44/2020.

Article 21 Income Tax Incentive

Under MOF Reg. 44/2020, the government will bear Article 21 income tax payments for certain employees who qualify for this incentive. Because the Article 21 income tax payments are borne by the government, employers will be required to pay the full monthly wage of qualified employees.

To qualify, an employee must receive income from an employer whose Business Classification Code (Kode Klasifikasi Lapangan Usaha or "KLU") is listed in Attachment A of MOF Reg. 44/2020, is a KITE Company, i.e. it has obtained an Ease of Import for Export Purposes (Kemudahan Impor Tujuan Ekspor) facility from the MOF, or has obtained a permit as a Bonded Zone Organizer (Penyelenggara Kawasan Berikat), Bonded Zone Organizer and Bonded Zone Entrepreneur (Penyelenggara Kawasan Berikat sekaligus Pengusaha Kawasan Berikat), or Entrepreneur in a Bonded Zone and Organizer in a Bonded Zone (Pengusaha di Kawasan Berikat merangkap Penyelenggara di Kawasan Berikat) (each a "Bonded Zone Permit"). The employee must also have a Taxpayer Registration Number and have an annual gross income that is permanent and regular during the relevant tax period of less than IDR 200 million.

The KLU for this incentive is the KLU stipulated and reported by the employer in its 2018 Annual Income Tax Return, or the KLU listed in the employer's tax administration data (Masterfile), if the employer only registered after 2018 or is a government institution.

This incentive is available from the April 2020 tax period to the September 2020 tax period. However, before a qualified employer can implement this tax incentive, it must give written notification to the Head of the Tax Office where it is registered, accompanied by the required documents. This notification is submitted and processed electronically though the DGT's online system (www.pajak.go.id), which will either confirm the receipt of the notification or deny the incentive.

The Article 21 income tax incentive is applicable from the tax period when notification was made until the September 2020 tax period, or until the tax period in which the employer's stipulation as a KITE Company or Bonded Zone Permits is revoked, if applicable.

Final Income Tax Incentive

Pursuant to MOF Reg. 44/2020, the government will bear the 0.5% final income tax for taxpayers having a certain gross turnover, as regulated by Government Regulation No. 23 of 2018 regarding Income Tax on Income from Business Earned or Received by Taxpayers Having Certain Gross Turnover ("GR 23/2018"). If this income tax is supposed to be withheld by the party paying the taxpayer, to implement this incentive the paying party will not have to withhold any amount when paying the taxpayer.

This incentive is available for taxpayers with a Statement Letter that the taxpayer is subject to income tax as regulated under GR 23/2018 ("GR 23/2018 Statement Letter"). A taxpayer intending to avail itself of this incentive must obtain a GR 23/2018 Statement Letter by submitting an application for the same electronically at www.pajak.go.id, irrespective of whether it has previously been issued a GR 23/2018 Statement Letter.

The government will provide this incentive to qualified taxpayers based on their last submitted final income tax realization report, provided that the taxpayer obtained a GR 23/2018 Statement Letter prior to the realization report submission.

This incentive will be implemented for the April 2020 tax period until the September 2020 tax period.

Article 22 Import Income Tax Incentive

MOF Reg. 44/2020 provides that Article 22 income tax on imports will not be collected from taxpayers whose KLU is included in Attachment I of MOF Reg. 44/2020, taxpayers which are KITE Companies, or taxpayers that have obtained a Bonded Zone Permit when they transport goods from a Bonded Zone to Another Place in the Customs Area (Tempat Lain Dalam Daerah Pabean).

The KLU for this incentive is the KLU stipulated and reported by the taxpayer in its 2018 Annual Income Tax Return, or the KLU listed in the taxpayer's tax administration data (Masterfile), if the taxpayer registered after 2018.

This exemption is implemented through the issuance of an Exemption Letter obtained by submitting an application and the required documents to the Head of the Tax Office where the taxpayer is registered through the DGT's electronic system (www.pajak.go.id). The Head of the Tax Office will issue an Exemption Letter or Rejection Letter. Approved taxpayers can benefit from this incentive until September 30, 2020.

Article 25 Income Tax Incentive

MOF Reg. 44/2020 also stipulates that certain taxpayers will receive a deduction on their Article 25 income tax installments. These taxpayers are those whose KLU is contained in Attachment N of MOF Reg. 44/2020, taxpayers which are KITE Companies, or taxpayers that have obtained a Bonded Zone Permit. The KLU for this incentive is the KLU stipulated and reported by the taxpayer in its 2018 Annual Income Tax Return, or the KLU listed in the taxpayer's tax administration data (Masterfile), if the taxpayer registered after 2018.

This deduction shall be 30% of the Article 25 income tax installment for each tax period, calculated according to the criteria set out in MOF Reg. 44/2020 and DGT CL 29.

Taxpayers can submit a notification of deduction to the Head of the Tax Office where they are registered through the DGT's online system (www.pajak.go.id), which will issue a confirmation of the receipt of notification or a rejection letter, depending on whether the taxpayer qualifies.

This incentive is applicable from the tax period in which such notification is made until the September 2020 tax period, or until the tax period in which the taxpayer's stipulation as a KITE Company or Bonded Zone Permit is revoked, if applicable.

VAT Incentive

Article 14 paragraph (1) of MOF Reg. 44/2020 stipulates that certain taxpayers may receive early refund of tax overpayment as low-risk taxable entrepreneurs. These taxpayers are those whose KLU is contained in Attachment I of MOF Reg. 44/2020, taxpayers which are KITE Companies, or taxpayers that have obtained a Bonded Zone Permit. To qualify for this incentive, taxpayers must also submit a VAT Tax Return overpayment refund for the relevant tax period (i.e., the April 2020 to the September 2020 tax period) with a maximum amount of IDR 5 billion.

The relevant KLU for this incentive is the KLU stipulated and reported by the taxpayer in its 2018 Annual Income Tax Return (or its amendments), or the KLU listed in the taxpayer's tax administration data (Masterfile), if the taxpayer has not or does not have the obligation to submit a 2018 Annual Income Tax Return.

Taxpayers applying for early refund will be subject to an administrative examination conducted by the Head of the Tax Office where the taxpayer is registered/administrated. If the taxpayer passes the examination, the Head of the Tax Office where the taxpayer is registered/administrated will issue an Early Tax Overpayment Refund Letter (Surat Keputusan Pengembalian Pendahuluan Kelebihan Pajak).

To qualify as a low-risk taxable entrepreneur under MOF Reg. 44/2020, the company must have a KLU that is contained in Attachment I of MOF Reg. 44/2020 or an effective KITE facility or Bonded Zone Permit upon submission of its application for VAT Tax Return overpayment refund.

Early refund is available for VAT Tax Returns (and their amendments) for the tax period since MOF Reg. 44/2020 came into force until the September 2020 tax period, with submission no later than October 31, 2020.

Reporting Requirement

Companies that receive the Article 21 Income Tax and/or Final Income Tax incentive under MOF Reg. 44/2020 must submit through the DGT's online system (www.pajak.go.id) a realization report by the 20th of the following month after a tax period ends.

Taxpayers benefitting from the Article 22 Income Tax and/or Article 25 Income Tax incentive must submit a realization report every three months through the DGT's online system. This report must be submitted at the latest by July 20, 2020 for the April - June 2020 tax period, and by October 20, 2020 for the July - September 2020 tax period.

Transitional Provisions

An employer or taxpayer having submitted a notification of Article 21 Income Tax and/or Article 25 Income Tax Incentive under MOF Reg. 23/2020 will not be required to re-submit a notification under MOF Reg. 44/2020. Similarly, taxpayers that submitted a request for an Article 22 Import Income Tax Exemption Letter or that have been issued the Exemption Letter under MOF Reg. 23/2020 will not be required to re-submit their application for the Exemption Letter.

All taxpayers approved for the Article 21 Income Tax incentive, Article 22 Import Income Tax incentive, Article 25 Income Tax incentive, and/or early VAT refund under MOF Reg. 23/2020 will continue to benefit from such incentives.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.