In our previous Article on this series, we have discussed the provisions regarding Income Tax Law and VAT Law, regulated in the Harmonization of Taxation Regulations ("HPP Law").

To recall, HPP Law has amended a number of tax laws, which include General Provisions and Tax Procedures, Income Tax Law, Value Added Tax Law, Voluntary Disclosure Program, Carbon Tax, Excise Law. The law is scheduled to be effective starting the date of the promulgation.

In this article, we specifically address HPP sections on Voluntary Disclosure Program, Amendment to General Taxation Law (Undang-Undang Ketentuan Umum dan Tata Cara Perpajakan or "KUP Law") and Carbon Tax.

A. Voluntary Disclosure Program: Chapter V of the HPP Law stipulates the Taxpayer Voluntary Disclosure Program for Indonesian taxpayers. Through the voluntary disclosure program, the government allows taxpayers to disclose their net asset value (i.e., the value of their total assets minus liabilities), pursuant to Law No. 11 of 2016 regarding Tax Amnesty ("Tax Amnesty Law"), in respect of assets obtained from 1 January 1985 to 31 December 2015, which have not been identified by the Directorate General of Taxation.

Voluntary Disclosures shall be made through the submission of disclosure notification letter known as surat pemberitahuan pengungkapan harta to the Directorate General of Taxation ("DGoT") during the submission period from 1 January to 30 June 2022.

The reciprocal outcome of such disclosure will allow the taxpayer to avoid any administrative sanctions for undisclosed assets as stipulated in Article 18 of Tax Amnesty Law. Furthermore, the disclosed assets will be deemed as additional income, subject to the final Income Tax rate, as follows:

No. Tax Rate Assets Location Form of Investments
1. 6% Assets in Indonesia Assets invested in business activities in natural resources management or sustainable energy sectors
State Securities (Surat Berharga Negara)
2. 8% Assets in Indonesia Assets not invested in sectors mentioned in Point 1
3. 6% Assets outside Indonesia Assets transferred to Indonesia; and
Assets invested in business activities in natural resources management or sustainable energy sectors.; and/or
State Securities (Surat Berharga Negara)
4. 8% Assets transferred to Indonesia
Assets not invested in business activities in natural resources management or sustainable energy sectors; and/or
Assets not invested in State Securities (Surat Berharga Negara).
5. 11% Assets outside Indonesia Assets not transferred to Indonesia

Furthermore, the latest period for assets to be transferred to Indonesia as referred to Points 1 and 3 above is 30 September 2022, while the latest period in investing the assets in certain sectors as referred to Points 3 and 4 above is 30 September 2023.

B. Amendments to KUP Law: HPP Law amends several articles of Law No. 6 of 1983 regarding General Provisions and Procedures of Taxation, as amended several times, and lastly amended by Law No. 16 of 2009 on KUP Law.

These amendments are as follows:

1. NIK as NPWP: Individual citizens may now use their national identity card number ("NIK") as their taxpayer identification number ("NPWP"). Previously, NPWP was a separate number from NIK recorded in our Nationality Identity Card. HPP is simplified to ease the tax administration system for individuals by using NIK as the Tax Identification Number.

2. Taxpayer's Proxy: Article 2 (9) of HPP law allows a husband, wife, or family by blood or by marriage up to second degree to act as the proxy of a taxpayer. Previously, KUP Law solely allowed individuals who were competent in the taxation to act as a proxy for a taxpayer.

3. Amendment of interest rate: Previously, KUP Law provided an interest rate of 2% per month of administrative sanction for inaccurate corrections made by the taxpayers of their Annual and Periodical Tax Returns (Surat Pemberitahuan Tahunan dan Surat Pemberitahuan Masa). To date, Article 2 point 2 of HPP Law amends the monthly interest rate to the following formula:

Basic Interest Rate + 5% / 12

Furthermore, KUP Law also provided a fixed rate of 50% of outstanding tax as an administrative sanction for taxpayers who disclosed an inaccurate tax return during the Directorate General of Taxation examination. HPP has amended that fixed rate, which applies monthly, using the following formula:

Basic Interest Rate + 10% / 12

4. Reduction of Fines on Tax Objections: KUP law previously imposed a fine of 50% of the payable tax on a taxpayer whose tax objection was dismissed or only partially granted. Article 2 point 6 of HPP has reduced such fine to 30% of payable tax. If the taxpayer or Directorate General of Taxation appeals the tax objection decision, the 30% fine would not be imposed until the appeal process is finished.

5. Reduction of Fines on Tax Appeal: Other than the reduction of fines regarding tax objection, Article 2 Point 6 of HPP Law has also reduced the fine whose tax appeal was dismissed or partially granted from 100% to 60% of payable tax.

C. Carbon Tax: Chapter VI of HPP law has introduced a carbon tax, which essentially aims to mitigate climate change in Indonesia that requires financing and to change the business players' behaviour, perspectives, and mindset that contribute to GHG emissions.

Based on Article 13 paragraph (1) of HPP Law, the carbon tax will be imposed on producers of carbon emissions that have massive and adverse impact on the environment. Subjects of Carbon Tax are, not only individuals, but also legal entities, which purchase goods containing carbon and/or conduct activities that produce carbon emissions.

Article 13 paragraphs (8) and (9) of HPP Law regulate the rate to be set higher than or equal to the carbon price in the market with a minimum rate of IDR 30 per kilogram of CO2 equivalent (CO2e). These two technical provisions will be further regulated by a Minister of Finance regulation as the implementation law. Furthermore, Article 17 paragraph (3) of HPP Law stipulates that the provisions of Article 13 on the carbon tax shall take effect on 1 April 2022.

D. Transitional Provisions: When HPP Law becomes effective, all implementing regulations of Law No. 1 of 2016 on Tax Amnesty relating to the disclosure of net assets are declared invalid if the disclosure is made between 1 January and 30 June 2022 in accordance with the provisions as referred to Article 6 paragraph (1) of HPP Law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.