Indonesia’s tax incentives face a major overhaul after Jakarta implemented the 15% Global Minimum Tax for multinational companies. The change—laid out in Minister of Finance Regulation PMK No.136/2024—forces firms with global annual revenue above €750 million to pay a minimum 15% tax. As a result, traditional income-based breaks like tax holidays and tax allowances no longer deliver the same benefits to investors.
What the Global Minimum Tax Means for Indonesia
The global minimum tax aims to curb a “race to the bottom” where countries compete with ever-lower corporate tax rates. PMK No.136/2024 adopts mechanisms such as the Income Inclusion Rule (IIR) and Domestic Minimum Top-up Tax (DMTT). These rules seek to ensure multinational profits face a baseline tax rate across jurisdictions. The government expects the rules to strengthen tax revenues for 2026, supporting the Rp2,357.7 trillion revenue target.
Susiwijono Moegiarso, Secretary at the Coordinating Ministry for Economic Affairs, acknowledged ongoing talks: “Regarding GMT, we are discussing it with the Ministry of Finance because the PMK exists. But, like other countries, its implementation is still under consideration. Other countries are doing the same.”
Indonesia Tax Incentives Shift to Stay Competitive
Policymakers now pivot from income-based incentives to options that remain compatible with global rules. Tax authorities and economists highlight expenditure-based measures and targeted credits as better fits.
Director General of Taxes Bimo Wijayanto said the government will support deeper local processing: “So the downstreaming will get better, deeper, and automatically the distribution of benefits will also be better. We are designing that.”
Possible incentive tools under discussion include:
- Immediate expensing or accelerated depreciation for capital investment
- Qualified Refundable Tax Credit (QRTC) tied to local value creation
- Credits for R&D, workforce training, and renewable energy projects
As tax expert Fajry Akbar noted, “In ASEAN itself, Singapore moved fastest, which in 2024 issued a QRTC policy called the Refundable Investment Credit (RIC). I think we can follow Singapore’s steps.”
Foreign Investment at Risk Under New Tax Rules
The new tax floor reduces scope for aggressive profit shifting. Consequently, tax holidays that previously lowered effective tax rates below 15% have lost much of their appeal. Investors will now evaluate locations on more than headline tax rates.
Competing ASEAN special economic zones continue to advertise generous packages—tax reductions, multi-year exemptions, and heavy investment allowances. Indonesia’s SEZ land area also remains smaller than several neighbors, which complicates scale-based incentives. These differences make it urgent for Indonesia to offer alternative value propositions.
New Strategies to Strengthen Economic Competitiveness
Economists propose a mix of non-rate incentives and structural reforms. Josua Pardede, Chief Economist at PT Bank Permata Tbk., recommends: “The government can shift focus to non-tax incentives, such as tax breaks based on research and innovation, support for downstreaming activities, or the development of new renewable energy. These incentives not only maintain investor appeal but also align with the long-term development agenda.”
Key policy actions should include:
- Regulatory certainty and faster permitting via OSS
- Infrastructure upgrades and skills development
- Innovative financing (e.g., BPI Danantara) for strategic projects
- Active diplomacy to protect investment flows
Balancing Tax Revenue and Indonesia Tax Incentives
Indonesia now faces a clear trade-off: secure fair tax revenue from large multinationals while preserving investment attractiveness. The government has started redesigning incentives toward expenditure-based credits, local value-creation support, and non-tax improvements in ease of doing business. These shifts aim to attract higher-value investment rather than compete on low tax rates alone.
Director General Bimo’s focus on downstreaming and economists’ calls for targeted non-rate incentives show a practical path forward. If Jakarta implements these measures well, Indonesia can uphold revenue goals and remain a competitive investment destination.
Source: ekonomi.bisnis.com
Image: Getty Images
