Indonesia: Carbon tax, corporate tax measures enacted in new law

Other tax law changes concern tax administration and procedure.

Other tax law changes concern tax administration and procedure.

Law No. 7 (2021) introduces a carbon tax and includes provisions relating to corporate income tax.

Carbon tax

  • The carbon tax will be imposed on carbon emissions that have a negative effect on the environment.
  • The rate of the carbon tax is to be not less than IDR30/kg, and the appropriateness of both the carbon emissions subject to the tax and the tax rate will be subject to regular review.
  • Implementation of a carbon tax will be accomplished in phases, with the earliest to be effective 1 April 2022.

Corporate tax provisions

  • The corporate income rate will continue at 22%, with a reduced rate for listed companies.
  • The tax depreciation/amortization periods for buildings/intangible assets having more than 20 years of useful life may follow the actual economic useful life in accordance with the approach(es) adopted in the taxpayer’s accounting treatment.
  • Banks and certain other financial institutions are allowed to deduct bad debts for banks.
  • A new method under the thin capitalization rules is adopted, with the percentage of EBITDA (earnings before interest, taxes, depreciation, and amortization) now considered an acceptable method in addition to the debt-to-equity ratio method.

VAT and excise tax

  • The VAT rate is increased to 11% (from 1 April 2022 to 31 December 2024) and then further increased to 12% (from 1 January 2025 onwards).
  • Goods and services that are categorized as subject to VAT are redefined.
  • Electronic cigarettes are subject to excise tax as a tobacco product.

Other tax measures

Other tax law changes concern tax administration and procedure (with measures concerning tax identification numbers, amended returns, tax penalties and interest, judicial review, and the mutual agreement procedure (MAP) process.

For individual taxpayers, the progressive income tax rate system is revised. Also, benefits-in-kind are taxable to employees and deductible for employers.

Read a December 2021 report [PDF 199 KB] prepared by the KPMG member firm in Indonesia

 

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