New tax amnesty rule directs funds to renewables, processing industries

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The Finance Ministry has issued a new regulation to steer the proceeds of the second tax amnesty toward renewable energy development and certain processing industries. Finance Ministerial Decree No. 52/2022 states that 332 such industries may receive more of the proceeds than others. These include geothermal power production, power generator manufacture, meat processing, furniture making, crude palm oil processing and ceramic manufacture.

 “Right now, [funds] from the tax amnesty are very valuable as a new source of investment for national economic development,” said Finance Ministry spokesperson Neilmaldrin Noor in a statement on Tuesday.

The decree is a derivative of Finance Ministerial Regulation No. 196/2021 that offers lower tax rates of 6 to 12 percent on declared assets on the condition that they go either into government bonds (SBN) or direct investment in renewables or processing industries. A higher rate of 8 to 18 percent is payable on declared assets that go into any other industries or financial instruments.

Neilmaldrin noted that the investments had to be made by September 2023 and with a minimal holding period of five years for the amnesty to apply. Taxpayers were also allowed to switch between investing in the 332 industries and investing in government bonds, under certain terms and conditions. “This is purely business, so investors can decide which is more profitable,” he said.

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The ministry launched the tax amnesty through the 2021 Harmonized Tax Law in a bid to raise state revenue after vastly increasing budget spending to finance COVID-19 relief efforts.

The tax office reported that 17,754 taxpayers had signed up for the tax amnesty as of Feb. 28. They had declared Rp 18.73 trillion (US$1.31 billion) in assets at home and Rp 1.3 trillion abroad. The taxpayers have invested in Rp 1.1 trillion in government bonds and contributed Rp 2.2 trillion in income tax through the amnesty program as of that date.

Finance Ministry Financing and Risk Management Director General Luky Alfirman said on Feb. 22 that the government would issue three bonds to accommodate demand from the tax amnesty, comprising two conventional bonds issued in February and one Sharia sovereign bond to be issued in March.

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