Indonesia to offer investors a simplified tax-holiday program

JAKARTA (Reuters) - Indonesia will unveil a simplified scheme for tax holidays next week and state oil firm PT Pertamina should be among the first to benefit, government officials said.

FILE PHOTO: PT Pertamina workers as seen during the process of loading and unloading fuel at a fuel terminal in Pematang Siantar, Indonesia North Sumatra province, October 6, 2016, in this picture taken by Antara Foto. Antara Foto/Irsan Mulyadi/via REUTERS

Boosting investment is a priority for President Joko Widodo as household consumption - the main engine of growth for Southeast Asia’s largest economy - has remained sluggish in recent years.

Under different programs, Indonesia has offered tax holidays since 2011, but the approval process has been complicated, and only a few companies have obtained them.

Under the revised rules due to be signed next week by the finance minister, a company can apply for income tax relief when it requests investment permits, Suahasil Nazara, head of the ministry’s fiscal policy office, told reporters on Thursday.

He said the rules are also simplified so that the investment size will determine the number of years for which a company can get tax discount.

An investment of 500 billion rupiah ($36.34 million) to 1 trillion rupiah will make a company eligible for five years holiday for corporate tax, Nazara said. The maximum holiday will be 20 years, given to those investing more than 30 trillion rupiah.

Current tax holiday rules offer a 10-100 percent income tax reduction for firms in “pioneering industries” for a maximum 15 years, though the minister can give an additional five years.

“Pioneering industries” are defined as those that, among other things, create added value and introduce technology. Among such industries are maritime transport, telecommunications, and processing of metals and agricultural products.

At present, a company can only apply for the tax break after obtaining an in-principle investment permit.

It was not clear whether companies in industries currently eligible for tax holidays will remain so under the new scheme.

Djoko Siswanto, the energy ministry’s director general of oil and gas, Pertamina’s refinery investment will likely be among the first to get the new incentive.

Nazara said Pertamina has applied for a tax holiday for a refinery it is planning to upgrade with Saudi Aramco.

Pertamina Finance Director Arief Budiman declined to give details, saying the company is in talks with the finance ministry.

Reporting by Wilda Asmarini; Writing by Gayatri Suroyo; Editing by Richard Borsuk