Indonesia plans to overhaul tax rules to attract investors

Pedro Gonçalves
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Indonesia plans to overhaul tax rules to attract investors

The Indonesian government has submitted a sweeping tax bill to parliament that proposes corporate tax cuts and seeks to make internet giants pay more taxes, as south-east Asia's largest economy strives to boost foreign investment and grow its manufacturing base.

he tax bill is part of President Joko Widodo's so-called "omnibus laws", or legislation aimed at replacing dozens of overlapping laws seen as obstacles to investment.

The bill was not made public, but Indrawati has previously said it would back cuts in the corporate tax rate, from the current 25% to 22% in 2021 and then to 20% in 2023.

Though we cut the corporate tax rate, we will widen our tax base and maximise our spending so that there is no economic shock"

The proposed changes would also make internet companies pay 10% value added tax (VAT) regardless of where they are based, among other things. 

"Though we cut the corporate tax rate, we will widen our tax base and maximise our spending so that there is no economic shock. This must be maintained because there is a global economic slowdown," Indrawati, a former World Bank managing director, told journalists.

The reform aims to create jobs by reforming laws linked to investment, intellectual property rights, land acquisition and Indonesia's labour market, which offers some of the most generous severance payments worldwide.

The bill, due to be discussed in parliament this week, has sparked protests in the capital Jakarta, amid fears that it could lead to workers' rights being eroded.

Indonesia and Singapore have also updated their double-tax avoidance agreement after years of negotiations, in a bid to close regulatory loopholes hurting tax takes.

 

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