Indonesia: Tax deductibility of donations, social fund contributions made by taxpayers in mining sector

Tax deductibility of donations and social development fund contributions by taxpayers in the mining sector

Tax deductibility of donations and social development fund contributions by taxpayers

The Minister of Finance issued guidance—Decree No. 62/PMK.03/2021 (7 June 2021)—regarding the tax treatment of certain payments made by taxpayers operating in the mineral mining business sector.

The decree addresses the tax deductibility of donations and social development fund contributions by taxpayers in the mining sector. The decree further addresses the required involvement of the central and/or local governments with regard to social infrastructure development fund contributions. 

The reporting obligations are effective beginning 1 January 2022.

The decree reaffirms that taxable income for taxpayers in the mining sector is determined based on gross income subtracted by costs for obtaining, collecting, and maintaining income—including expenses for donations and/or similar expenditures made through certain agencies or institutions, in five areas:

  • Donations for national disaster recovery
  • Donations for research and development carried out in Indonesia and submitted through research and development (R&D) institutions
  • Donations to educational facilities
  • Donations for sports coaching
  • Donations to social infrastructure development funds providing facilities and infrastructure for the public interest, including the health sector and non-profit organizations

Institutions that are qualified to receive these donations are those that have involved the central and/or local governments in their donation distribution programs. If the donations are made in the form of facilities and/or infrastructure given directly to the central and/or local governments, the governmental involvement requirements are deemed to have been met if the taxpayer reported no tax loss on its income tax return for the prior fiscal year; the donations do not cause a tax loss in the current fiscal year; and the donation deductions are supported by valid documentary evidence. 

KPMG observation

The decree clarifies the procedures for the involvement of the central and/or local governments and the requirements for taxpayers in the mining sector to be able to treat their donations and/or contributions as tax-deductible expenses. Taxpayers need to exercise care regarding the coverage, procedures, reporting, and timelines to avoid potential challenges by the tax authority regarding claims for these expenditures.
 

Read an August 2021 report [PDF 310 KB] prepared by the KPMG member firm in Indonesia

 

 

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