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Tax Flash KIB Consulting Final aug19

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Tax Flash KIB Consulting

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Tax Flash KIB Consulting Final aug19

  1. 1. TAX FLASH “This is not about me, or you. It’s time to think about building a nation together.” - Joko Widodo In This Issue • Indonesian Vision (2019-2024) • Economic & Fiscal Update • The US – China Trade War — KIB Trade Talk • Directorate General of Taxes (DGT) Tax Holiday | Super Deduction • Our Involvement Indonesia Vision 2019—2024 “Our focus is to improve connectivity” Said President elect Mr. Joko Widodo during the “Indonesian Vi- sion” rally on July 14,2019, outlining his vision for the 2019— 2024 term. President Widodo will accelerate development and connect the infrastructure projects that would open marketing and distribution access to small and medium enterprises (SMEs), plantations and fisheries to boost regional economies. Infrastructure shall remain the priority amongst other 5 visions he pledged : Human Capital development, broader investment op- portunity, bureaucracy reformation, and a more efficient state budget. KIB E-newsletter Aug 2019
  2. 2. Economic & Fiscal Update Indonesia GDP Annual Growth Weakens to 2-Year Low Key Points: 1.Indonesia’s annual economic growth eased slightly to 5.05% in the second quarter of 2019 from 5.07% in the previous quarter. As invest- ment growth remained the slowest since early 2017. 2. GDP Annual Growth Rate averaged 5.28% from 2000 until 2019. “The social justice movement of the 21st century is economic development. ” -Wendell Pierce On the expenditure side, fixed-investment went up 5.01 percent in the second quarter, slowing from 5.03 percent in the March quarter. Meanwhile, household consumption rose 5.17 percent, after a 5.02 percent increase in the previous period; and government spending climbed 8.23 per- cent, compared with a 5.21 percent advance in the previous period. Net external demand contributed positively to the GDP growth as exports fell 1.81 percent (vs - 1.86 percent in Q1) and imports tumbled at a faster 6.73 percent (vs -7.36 percent in Q1). On the production side, output growth slowed for: manu- facturing (3.54 percent vs 3.86 percent); electricity and gas (2.20 percent vs 4.12 percent); accommodation & food services (5.52 percent vs 5.87 percent); construction (5.69 percent vs 5.91 percent); wholesale and retail trade (4.63 percent vs 5.27 percent); business services (9.94 percent vs 10.36 percent); financial and insurance ser- vices (4.55 percent vs 7.32 percent); and water and waste management (8.35 percent vs 8.95 percent). In addition, mining and quarrying output shrank 0.71 percent, com- pared to 2.32 percent expansion in the previous period. Meantime, GDP expanded faster for: agriculture (5.33 percent vs 1.82 percent); transportation & storage (5.78 percent vs 5.25 percent); public administration, defense and social security (8.82 percent vs 6.40 percent); real estate (5.74 percent vs 5.46 percent); information and communica- tion (9.60 percent vs 9.06 percent); education (6.29 percent vs 5.60 percent); health and social services (9.09 percent vs 8.59 percent); and other services (10.73 percent vs 9.99 percent) 2019 Growth Target: 5.2%
  3. 3. Economic & Fiscal Update “Nothing is impossible if we put our trust in God” -Bambang Suwarso Source: Statistic Indonesia | Chusnul Ch Manan TradingEconomics GDP Growth Actual (%) Previous (%) GDP Growth Rate YoY Q4 5.18 5.17 Full Year GDP Growth 2018 5.17 5.07 GDP Growth rate YoY Q1 5.07 5.18 GDP Growth rate YoY Q2 5.05 5.07 GDP Growth Rate YoY Q3 5.05 Key economic indicators 2018 2019 2020 1. Main economic indicators Gross Domestic Product (GDP) 5.2 5.1 5.2 Private consumption 5.1 5.2 5.2 Government consumption 4.8 5.1 5.0 Gross fixed capital formation 6.7 5.0 5.2 Exports of goods and services 6.5 2.6 3.5 Imports of goods and services 12.0 0.0 3.2 2. Other economic indicators Consumer prices index 3.2 3.0 3.1 3. Economic Assumptions Exchange rate (IDR/USD) 14,237 14,186 14,475 Indonesian crude price (USD/ bbl) 67.5 64.3 63.3 Given the weaker than expected outturn in Q1 and renewed trade tensions, economic growth in 2019 is forecast to ease to 5.1% and then tick up to 5.2% in 2020. The modest accelera- tion in private consumption is expected to continue due to the general elections, low in- flation, and buoyant labor market conditions.
  4. 4. Economic & Fiscal Update “Nothing is impossible if we put our trust in God” -Bambang Suwarso Source: Statisctic Office of Vietnam | TradingEconomics GDP Growth Actual (%) Previous (%) GDP Growth Rate YoY Q3 6.88 6.73 GDP Growth Rate YoY Q4 7.31 6.82 GDP Growth Rate YoY Q1 6.79 7.31 GDP Growth Rate YoY Q2 6.71 6.82 GDP Growth Rate YoY Q3 6.71 In Vietnam, Industry and construction constitute the biggest sector of the economy (41 % of total GDP). Yet, in the past six years the growth in services outpaced significantly all other sectors, and today services account for 37 % of GDP. Finally, agriculture, forestry and fishing represent 22 % of total output.
  5. 5. Economic & Fiscal Update “I’m not in competition with anybody but myself. My goal is to beat my last performance” -Celine Dion Source: TradingEconomics The most recent 2018 edition of Global Competitiveness Report assesses 140 economies. The report is made up of 98 variables, from a combination of data from international organizations as well as from the World Economic Forum’s Executive Opinion Survey. The variables are organized into twelve pillars with the most important including: institutions; infrastructure; ICT adoption; macroeconomic stability; health; skills; product market; labour market; financial system; market size; business dynamism; and innovation capability. The GCI varies between 1 and 100, higher average score means higher degree of competitiveness. With the 2018 edition, the World Eco- nomic Forum introduced a new methodology, aiming to integrate the notion of the 4th Industrial Revolution into the definition of com- petitiveness. It emphasizes the role of human capital, innovation, resilience and agility, as not only drivers but also defining features of economic success in the 4th Industrial Revolution. 64.94 58.05 2019 Competitiveness Index
  6. 6. Economic & Fiscal Update “Regardless of the industry, antitrust law is meant to benefit consumers not competitors - Marvin Ammori Investment growth continued to cool down to 5.0% yoy from 6.0 % in Q4 2018, in part because of postponed investment deci- sions ahead of the elections; weaker public infrastructure spending, in part due to current account concerns, and gradual deterio- ration in commodity prices. A high base effect also contributed to the weaker outturn. Investment in buildings and structures re- mained the main contributor to overall investment growth at 4.1 pp up from 3.3 pp in Q4 2018. Growth in machine and equip- ment investment moderated significantly to 8.4% from 12.3% in Q4, ending the consecutive double-digit growth for the past six quarters. Private consumption growth picked up to reach 5.3% in Q1 compare to 5.2 in Q 2018 Investment Growth continued to soften The nominal current account deficit narrowed in Q1, in line with the slowdown in investment USD billion Source: BPS & World Bank % %
  7. 7. Economic & Fiscal Update “The country needs fiscal discipline to build a strong economy and for social justice” - Smriti Irani Real imports contracted sharply: The contraction in real imports, which was also in light of slowing investment growth, was almost four times greater than that in real exports, leading net exports to support growth for the first time since Q3 2017. De- spite robust domestic private consumption, real imports shrank 7.8% in Q1, mostly driven by the reduction in oil and gas im- ports by 22.9 %, which was in turn partly due to the Government mandate to use biofuel in the diesel mix and Government poli- cies to manage the imports of certain commodities, which has been implemented in the 2nd half of 2018. Meanwhile, the con- traction in exports was mostly due to oil and gas goods exports, dipping 0.7% after growing 6.0 % in Q4 2018, in line with the reduction of Indonesia’s oil lifting and the Government policy that prioritized domestically-produced oil for domestic consump- tion rather than for exports Export & Import Source: BPS & World Bank
  8. 8. “Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit” -Napoleon Hill KIB Trade Talk July 25, 2019, Grand Mercure Hotel, Kemayoran—Jakarta Problems identified: Context: The infamous trade war between the US and China has boosted Vietnam’s FDI by 16-fold in just 9 months, making them the official “winner” of this situation. In contrast, the gap between Indonesia’s import and export just keeps getting wider. Indonesia’s declining exports have been going on since way before the US-China Trade War happened. Instead of blaming our trade deficit on this “war,” we should be seeing this as a wake-up call. At the moment, the country’s main focus is to increase export and foreign investments. However, more important- ly, Indonesia needs to be agile and ready to break into foreign markets besides the US and China. In terms of product quality, we are better than Vietnam. The only things we are lacking are exposure and capacity, which is why local businesses and the government need to work hand in hand to make Indonesia better. L-R : Rudy Luwia, Noni Purnomo, Bambang Suwarso, Shanti Shamdasani, Nurlaila Muhammad, Rudy Rahmaddi Weak Competitiveness Govt. & Private Disintegration Inefficiency Low demand in commodity Unsolved manufactur- ing problems Unskilled workforce
  9. 9. “For every benefit you receive a tax is levied” -Ralph Waldo Emerson KIB Trade Talk July 25, 2019, Grand Mercure Hotel, Kemayoran—Jakarta Focus in signifi- cant regional and multilateral rela- tionship Enhance Govt. & Private Collabora- tion and promote real integration Create more Pro-industry policies Low demand in commodity Promote commodity shifting by creating value-added products Start investing in PEOPLE Proposed Solutions: *) There needs to be a synergy between the government and business owners. Businesspeo- ple need to embrace a healthy relationship with government agencies. Through this partner- ship, we ultimately hope to achieve better import/export and pro-industry policies. This easier, simpler procedure could attract more foreign direct investments (FDI) in Indonesia, hence, more job opportunities for Indonesians. *) Businesses have to start investing in people who can liaise with the government, whose job it to build and maintain a healthy relationship with them. This should not be the obligation of business owners only and should not happen only when they are in need of favors from the government. *) We need to identify potential growth areas in Indonesia and make quick-win initiatives for the short-run. Find the reformists, sit together with them, build a roadmap, and establish a vi- sion/goal to achieve together in the long-run. *) Indonesia needs to shift from raw commodities (e.g. mining, agribusiness, etc.) to the manu- facturing sector to compete in foreign markets. Local businesses must act quick and make use of this time to push exports before the US removes Indonesia from Generalized System of Preferences (GSP). *) Right now, Indonesia can find huge opportunities in labor intensive sectors because we have a huge working age population. *) Eventually, Indonesia would want to adopt a “disruptive” strategy: Automation. We should invest in more machines, as the rest of the world is progressing towards less manual (human) labor jobs. *) Indonesia should be more involved in international projects to increase exposure. For exam- ple, Indonesia should try to get a more significant role in China’s Belt and Road initiative (BRI). *) We need to improve the quality of our workforce, as the output we produce for our investors is not as good as the one they can get from other countries. One thing Indonesia can learn from Vietnam is their consistency and focus on giving high quality products.
  10. 10. Directorate General of Taxation (DGT) Passed Regulations “Incentives are not strategy, they are tactics. Defensive measures.” - Carlos Ghosn PMK-150/2018 PMK-167/2018 PMK-205/2018 PMK-212/2018 Tax Holiday Provision of Food and Beverages (compensation) Use of Book Value Deposits & Savings PMK– 85/2019 PMK-92/2019 PMK-213/2018 PMK-215/2018 Treasurer Supervision Luxury Goods Regulation simplified Instalments Ministry of Finance Directorate General of Taxes PER-29/2018 PER-30/2018 PER-14/2019 PER-05/2019 Support on Infrastructure Viability Gap Fund Regulation simplified Revocation of PER 32/2010 Zakat PER-26/2018 PER-09/2019 PER-03/2019 SE-08/2019 SSP validation for Developer Revocation of Notice of Tax Exemption PP 23/2018 Tax Clearance Certificate (SKF) Cost of Benefit Claims of Life Insurance PP 50/2019 Non-collective of VAT on the Imports and Deliveries of Certain Means of Transport and on the deliveries of Taxable Services related to certain means of Transport Others VAT on Imported Services
  11. 11. Directorate General of Taxation (DGT) The New Era of Tax Holiday PMK 35/2018 150/2018 “The best things in life are free, but sooner or later the Government will find a way to tax them.” -Anonymous 1 Coverage of Pioneer Indus- tries 2Reduction of Minimum Investment Threshold 3 Procedure Simplification 4 Legal Assurance Then : 9 industries Now: 18 Industries Then : min. 1T; 500 M Now : min. 100 M Then: Verification committee required Now: 5 days OSS Verification Then : Timeline unclear Now : Timeline clear based on value of invest- ment Entitled Tax Payer Form of Facilities 100M to <500 M Min. 500 M 50 100 5 years 5-20 years 2 year relaxation (25%) 2 year relaxation (50%) % Resident Taxpayer Pioneer Industries ( in exception of article 5) New Capital investment Meets DER requirement Obtained Indonesian Legal Entity
  12. 12. Directorate General of Taxation (DGT) SUPER DEDUCTION The Background “You can’t tax business. Business doesn’t pay taxes. It collects taxes.” -Ronald Reagan Promote Full Employment Create Qualified Workforce (Link & Match) Create high-valued Goods & Services Policy Setting Super Deduction Incentive and Investment Allowance Income Tax Law article 35 PP 45/2019 RPMK Investment Allow- ance facility for Labor in- tensive industry RPMK Super Deduction Facility for Work Practice & Internship (vocation) RPMK Super Deduction Facility on Research and Development Scale of the facility Type of Business & No. of employees Facility application & mechanism Scale of the facility Type of Work Practice & Internship Facility application & mechanism Scale of the facility Type of Research & Development Facility application & mechanism
  13. 13. Directorate General of Taxation (DGT) SUPER DEDUCTION Investment Allowance for Labor Intensive Industry (export oriented) “The power to tax is the power to destroy” - John Marshall Requirement Resident Corporate Tax Payer ,who is making fresh (new) capital investment or extending a certain type of business provided with the following criteria: • Labor intensive industry and • Were not granted facility which was stipulated on income tax law article 31A or article 29 (1) Form of Incentive • 60% of Net-income reduction taken from the amount of capital investment: fixed asset including land—used for main production & business activity. • Charge applicable for 6 years @ 10% per year. Procedure • Application should be submitted through OSS (online single submission ) system • Criteria matching through OSS • Application status result: 5 working days (from the date of application received)
  14. 14. Directorate General of Taxation (DGT) SUPER DEDUCTION Work Practice & Internship (Vocation) “The power to tax is the power to destroy” - John Marshall Entitled Subject • Resident Tax Payer • Bearing the cost for work practice, internship and/or on-field study in hu- man resource development and advisory based on certain competence • Having work agreement with SMK, MA Kejuruan, PT Program Diploma, BLK, or civil government unit whose business is dedicated in labor devel- opment program • Not in a net-loss fiscal performance during the year of application Form of Facility Up to 200% gross income reduction from the cost claimed, including: A. 100% from incurring cost that relates to vocation activity B. An additional 100% of incurring cost as mentioned on the above Type of Vocation A. Work Practice and/ or internship that is being held in the Resident Tax Payer B. Study that is being organized by a third party who was assigned by the resident tax payer to teach in SMK, MA Kejuruan, PT Program diploma and/or BLK.
  15. 15. Directorate General of Taxation (DGT) SUPER DEDUCTION Research and Development “The power to tax is the power to destroy” - John Marshall Entitled Subject Resident Tax Payer who is conducting a certain research and develop- ment project Form of Facility Up to 300% gross income reduction Facility—Time of use Dedicated to a certain research and development • proven research result being used on production activity or • patent certification Type of Opex and Capex Assessment Annual assessment held by Kemenperin/Kemenristek precedes the research and development
  16. 16. Contact Us Phone: (62-21) 2929 5870-73 Bambang B. Suwarso bambang.suwarso@kib- consulting.com Rachmat Kurniawan rachmat@kib- consulting.com Yosefine Amelia yosefine@kib- consulting.com Raden Roro Ratna Indah Wulandari wulan@kib- consulting.com Address: The Koppel Building Suite IB. Jalan Pluit Selatan Raya no. 10 Jakarta Utara– 144550 Indonesia www.kib-consulting.com Disclaimer: The facts and opinions stated or expressed in this publication are for information purposes only, and are not necessary and/or must not be relied upon as being to those of the publisher or of the institu- tions for which the contributing authors work. Although every part of content has been taken to ensure the accuracy of the information contained within this publication, it should not be by any person relied upon as the basis for taking any action or making any decision. KIB Consulting and its representative, cannot be held liable or otherwise be responsible in anyway for any advice, action taken or decision made on the basis of the facts, surveys, and opinions stated or expressed within this publication. Our Involvement Radju Munusamy & Bambang Suwarso KADIN Focus Group Discussion on Trade War KADIN—Focus Group Discussion on Trade War
  17. 17. Contact Us Phone: (62-21) 2929 5870-73 Bambang B. Suwarso bambang.suwarso@kib- consulting.com Rachmat Kurniawan rachmat@kib- consulting.com Yosefine Amelia yosefine@kib- consulting.com Raden Roro Ratna Indah Wulandari wulan@kib- consulting.com Address: The Koppel Building Suite IB. Jalan Pluit Selatan Raya no. 10 Jakarta Utara– 144550 Indonesia www.kib-consulting.com Disclaimer: The facts and opinions stated or expressed in this publication are for information purposes only, and are not necessary and/or must not be relied upon as being to those of the publisher or of the institu- tions for which the contributing authors work. Although every part of content has been taken to ensure the accuracy of the information contained within this publication, it should not be by any person relied upon as the basis for taking any action or making any decision. KIB Consulting and its representative, cannot be held liable or otherwise be responsible in anyway for any advice, action taken or decision made on the basis of the facts, surveys, and opinions stated or expressed within this publication. Our Involvement 2019 New Economic Fulcrum in The Making http://pacificexposition.co.nz/
  18. 18. Contact Us Phone: (62-21) 2929 5870-73 Bambang B. Suwarso bambang.suwarso@kib- consulting.com Rachmat Kurniawan rachmat@kib- consulting.com Yosefine Amelia yosefine@kib- consulting.com Raden Roro Ratna Indah Wulandari wulan@kib- consulting.com Address: The Koppel Building Suite IB. Jalan Pluit Selatan Raya no. 10 Jakarta Utara– 144550 Indonesia www.kib-consulting.com Disclaimer: The facts and opinions stated or expressed in this publication are for information purposes only, and are not necessary and/or must not be relied upon as being to those of the publisher or of the institu- tions for which the contributing authors work. Although every part of content has been taken to ensure the accuracy of the information contained within this publication, it should not be by any person relied upon as the basis for taking any action or making any decision. KIB Consulting and its representative, cannot be held liable or otherwise be responsible in anyway for any advice, action taken or decision made on the basis of the facts, surveys, and opinions stated or expressed within this publication. Our Involvement
  19. 19. Contact Us Phone: (62-21) 2929 5870-73 Bambang B. Suwarso bambang.suwarso@kib- consulting.com Rachmat Kurniawan rachmat@kib- consulting.com Yosefine Amelia yosefine@kib- consulting.com Raden Roro Ratna Indah Wulandari wulan@kib- consulting.com Address: The Koppel Building Suite IB. Jalan Pluit Selatan Raya no. 10 Jakarta Utara– 144550 Indonesia www.kib-consulting.com Disclaimer: The facts and opinions stated or expressed in this publication are for information purposes only, and are not necessary and/or must not be relied upon as being to those of the publisher or of the institu- tions for which the contributing authors work. Although every part of content has been taken to ensure the accuracy of the information contained within this publication, it should not be by any person relied upon as the basis for taking any action or making any decision. KIB Consulting and its representative, cannot be held liable or otherwise be responsible in anyway for any advice, action taken or decision made on the basis of the facts, surveys, and opinions stated or expressed within this publication. Our Involvement
  20. 20. KADIN Talk with Minister or Finance Sri Mulyani Coordination Meeting—Pacific Exposition Contact Us Phone: (62-21) 2929 5870-73 Bambang B. Suwarso bambang.suwarso@kib- consulting.com Rachmat Kurniawan rachmat@kib- consulting.com Yosefine Amelia yosefine@kib- consulting.com Raden Roro Ratna Indah Wulandari wulan@kib- consulting.com Address: The Koppel Building Suite IB. Jalan Pluit Selatan Raya no. 10 Jakarta Utara– 144550 Indonesia www.kib-consulting.com Disclaimer: The facts and opinions stated or expressed in this publication are for information purposes only, and are not necessary and/or must not be relied upon as being to those of the publisher or of the institu- tions for which the contributing authors work. Although every part of content has been taken to ensure the accuracy of the information contained within this publication, it should not be by any person relied upon as the basis for taking any action or making any decision. KIB Consulting and its representative, cannot be held liable or otherwise be responsible in anyway for any advice, action taken or decision made on the basis of the facts, surveys, and opinions stated or expressed within this publication. Our Involvement FGD meeting

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