Tax Policy in Indonesia

1. Ministry of Finance of the Republic of Indonesia Tax Policy in Indonesia Presented by : MAHENDRA SIREGAR Vice Minister of Finance of The Republic of Indonesia for The Conference on Profit Generating Environmental Investment in Agri-business 29th February 2012 Sultan Hotel, Jakarta

2. Outline • Overview of the Indonesian Taxation • Tax and Non Tax Revenue Trends • 2012 Indonesian Fiscal Policy • The Indonesian Tax Incentives • The Recent Investment Growth in Indonesia • Conclusion

3. Overview of the Indonesian Taxation • Self Assessment System • Types of Tax: • Income Tax • Individual : progressive rate 5%-30% • Corporation • Before 2009 : progressive rate 10%-30% • 2009 : flat rate 28% • 2010 onwards : flat rate 25% • Small and Medium Enterprise : 50% lower (terms & condition applied) • Value Added Tax (VAT): flat rate 10% • Property Tax : flat rate 0.5% (effective rate 0.1%) • Stamp Duty : 2 rates (IDR 3000 and IDR 6000) • Customs and Excises: • Import Duties: • Most Favoured Nations • Preference • Export Duties • Excises Trends of Average Import Duties

4. International Cooperation • Multilateral Convention on Mutual Assistance in Tax Matters International Cooperation

5. Tax Revenue Growth (2006 – 2012) Percent IDR Trillion Budget Revised Budget Other Excise VAT Income Tax • 2006-2012: Tax Revenue increased by 2.5 times, from IDR 409,2 T (2006) toIDR 1.019.2 T (2012). • Average growth is 17% annually. • 2011–2012: Tax revenue increased by 17.5%; Non-oil tax revenue increased by 22.2%.

6. Non Tax Revenue (2006 – 2012) Percent IDR Trillion Revised Budget Budget Ratio of Non Tax Revenue /Domestic Revenue BLU SOE Dividend Other Natural Resources • During the period of 2006-2012, Non Tax Revenue increased by 6% annually. • Natural Resources, particularly the Oil and Gas, have been the primary sources of non tax revenue.

7. 2012 Indonesian Fiscal Policy The Government Mission for the year 2012: Acceleration and Expansion of the Qualified Economic Growth, Inclusive and Fairness to Improve People’s Welfare 4 Pillars of Development Pro Growth Pro Job Pro Poor Pro Environment Fiscal Policy Direction for the year 2012 Support the economy (by providing fiscal stimulus) while maintaining economic stability and fiscal sustainability Taxation Policy Strategies • Tax Reform and Modernization: • Equality • Simplicity • High integrity Encourage Direct Investment by Providing Tax Incentives for Priority Sectors/Industries/Regions 7

8. Logical Framework forTax Incentives Formulation • INTERNAL CONESIDERATION • Economic and sector development strategy • Regional development importance. • Incentive goals • Multiplier effect • Synchronization with other linked policies • INDUSTRY/BUSINESS CRITERIA • Pioneer • High Priority • INCENTIVE BY INDUSTRY/ BUSINESS CRITERIA • Pioneer • High Priority • BASIC PRINCIPLES • Economic impact (Cost-Benefit analysis) • Administrative efficiency • Efficient and effective GENERAL PATTERN IN TAX INCENTIVE Tax Incentives to attract investment COMBINATION • INCENTIVE BY REGION • Developed Region • Developing Region • Undeveloped Region • EXTERNAL CONSIDERATION • International best practice • Competitiveness Intensity • International commitment • REGIONAL CLASSIFICATION • Developed Region • Developing Region • Undeveloped Region

9. OVERVIEW OF INDONESIA FISCAL INCENTIVES to Promote Direct Investment • TAX ALLOWANCE: • Investment Allowance (30% of investment) • Accelerated Depreciation • Dividend Tax Discount • Period Extention for carry forward Loss High Priority Business Sectors/ Areas In The National Scale Income Tax TAX HOLIDAY: Income tax relief for 5-10 years period after commencing the commercial production period. 50% Income tax reduction from Income Tax payable for additional 2 years period. Pionir Industry

10. Amid the Uncertainty of Recent Global Economy, Indonesia Regained the Investment Grade from Fitch and Moody’s .... INVESTMENT GRADE (18 January 2012) INVESTMENT GRADE (15 December 2011) 2010 Moody’s (Ba3 Stable Outlook) S&P(BB+ Positive Outlook) Fitch(BBB- Stable Outlook) 2009 2011/2012 2008 Ba3  Ba2 BB-  BB BB  BB+ 2007 BB- Ba2 BB BB+ BB-  BB Ba3 2006 BB- B1  Ba3 2005 BB- BB- B2  B1 2004 BB- B+  BB- B2 2003 B+ B+  BB- B2 B  B+ B+ B3  B2 B-  B B  B+ The position of Indonesia investment grade reflects the strength and resilience of economic growth amid the global economic slowdown, fiscal discipline, strong external liquidity, and the prudent of macroeconomic, fiscal and monetary policies. Source: Moody’s, S&P, Fitch

11. The Growth of Direct Investments in Indonesia Foreign Direct Investment (PMA) and Domestic Direct Investment (PMDN) Source: Bank Indonesia,Indonesian Statistic Board Realization of Foreign Direct Investment (FDI/ PMA) and Domestic Direct Investment (DDI/PMDN) remain strong and positive.

12. Conclusion • Indonesia is still continuing its tax reforms to establish more efficient tax administration and to give more equality for taxpayer. • The reforms are performed together with the implementation of prudent tax policy and the introduction of competitive tax incentives. • Those together are aiming to encourage direct investment in order to ensure sustainable development in Indonesia

13. Ministry of Finance of the Republic of Indonesia THANK YOU