The government has officially issued a tax deduction rule for company participating in vocational development and research through Government Regulation (PP) No. 45/2019. The tax deduction could reach 300 percent of the total cost of research and development carried out by the company as taxpayer.
The regulation was issued in order to boost investment in labor-intensive industries, support the creation of employment programs and absorption of Indonesian workers, and encourage the involvement of the business and the industrial world in preparing high quality human resources.
The industrial circles welcomed the policy even though Finance Minister Sri Mulyani still has not issued the derivative rules. The Indonesian Employers Association (Apindo) Deputy Chairperson Shinta Kamdani said the incentive would attract investors in, especially for the electronic vehicle (EV) industry.
High-value manufacturing industries obviously need a lot of skilled labor, even though they are not cheap. With the incentive, manufacturing industries that provide vocational education and research can enjoy tax deduction facility. “I believe this policy can help export, human resources, and research capabilities,” Shinta said, a few days ago.
Based on the government regulation, taxpayers who make new investments are pioneer industries that do not get the facility. However, they can only get an exemption or deduction of corporate income tax (PPh) as stated in Article 31A of the Income Tax Law. The pioneer industry in question is an industry that has a broad relationship, providing added value and high externality.
According to Article 29A, domestic taxpayers who undertake new investments or business expansion in labor-intensive industries and have not received tax facility can be provided with income tax incentive in the form of a 60 percent deduction in net income from the total investment in the form of tangible fixed assets. It includes land used for main business activities, which are charged for a certain period of time.
Meanwhile, Article 29B stated that domestic taxpayers who carry out work practices, apprenticeship and/or learning activities in the context of coaching and developing certain competency-based human resources can be given gross income deduction. The highest amount is 200 percent of the total cost incurred in the framework of the coaching activity.
Domestic taxpayers who carry out certain research and development activities in Indonesia also get incentive in the form of a deduction in gross income with a maximum amount of 300 percent of the total cost incurred for certain research and development activities in Indonesia, which are charged within a certain period of time.
Boosting Investment in Labor-Intensive Industrial Sectors
The Indonesian Chamber of Commerce and Industry (Kadin Indonesia) believes the incentive will increase investment in labor-intensive sectors. Kadin Indonesia Deputy Chairman for Industrial Sector Johnny Darmawan said the policy would help absorb labor. “Many labor-intensive companies will come to Indonesia,” he said.
This policy is suitable for Indonesia, where the majority of its workforce is dominated by elementary and junior high school graduates. This step is also important to offset the productivity of neighbouring countries, such as Vietnam. “So it's not too late. This is a relief for us at Kadin,” he said.