Indonesia to issue larger tax breaks to cover 11 more sectors

Indonesia will issue larger tax breaks to cover 11 business sectors similar to the incentives given to manufacturing industries to help companies weather the economic impacts of the COVID-19 pandemic. The 11 sectors are food, trade, electricity, oil and gas, mining and coal, forestry, tourism and the creative economy, telecommunications, logistics, transportation and construction, Finance Minister Sri Mulyani Indrawati said. She added that the incentives would be in the form of individual income tax exemptions, import tax deferrals and 30 percent corporate tax discounts. The tax incentives would be covered in the fourth stimulus package that the government is currently finalizing.

“From an economic standpoint, the COVID-19 shocks could damage businesses and cause massive bankruptcy,” Sri Mulyani told reporters via a teleconferenced briefing. “We are trying to focus our stimulus to lessen the COVID-19 economic shocks on citizens.”

The government previously announced tax breaks for manufacturing industries worth Rp 22.9 trillion (US$1.46 billion). Manufacturing workers with incomes below Rp 200 million per year would be exempted from paying income tax. Corporate income tax for the manufacturing sector has also been cut by 30 percent and import tax payments deferred. Tax revenue contracted 2.5 percent in March to Rp 241.6 trillion, mainly driven by a weakening oil and gas sector, while customs and excise revenue grew by 23.6 percent to Rp 38.3 trillion, driven by a rise in tobacco excise.

“Tax revenue will face heavy pressure over the next several months as economic activities slow down, fiscal stimuli take effect and commodity prices decline,” Sri Mulyani said.

Indonesia booked a state budget deficit of Rp 76.4 trillion as of March this year but the amount “did not fully reflect the economy” as revenue grew significantly while spending growth slowed, Sri Mulyani added. The budget deficit is expected to widen to 5.07 percent this year. Indonesia has set aside Rp 405.1 trillion from the 2020 state budget for medical needs, the social safety net and relief for small and medium businesses as the pneumonia-like illness has infected more than 5,000 people as of Friday afternoon, with 496 dead.

“Further stimuli will be announced, including for the healthcare sector,” the finance minister said. “We will continue to make sure that measures to lessen the COVID-19 impacts will have proper budget support.”