Download UU No. 7 Tahun 2021: Harmonisasi Peraturan Perpajakan yang Berlaku Mulai 29 Oktober 2021
UU No. 7 Tahun 2021: What You Need to Know About the New Tax Law in Indonesia
Indonesia is one of the largest economies in Southeast Asia, with a population of over 270 million people and a gross domestic product (GDP) of more than $1 trillion. The country has been undergoing various reforms and initiatives to boost its economic growth, resilience, and competitiveness, especially in the wake of the COVID-19 pandemic.
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One of the most significant reforms that Indonesia has recently implemented is the enactment of a new tax law, known as UU No. 7 Tahun 2021 or the Law on Harmonization of Tax Regulations. This law aims to simplify, harmonize, and modernize the Indonesian tax system, as well as to increase tax revenue, compliance, and fairness.
In this article, we will explain what UU No. 7 Tahun 2021 is, why it was enacted, and what are its main objectives. We will also discuss the key changes and implications of this law for taxpayers in Indonesia, as well as provide some recommendations and tips on how to comply with it. Finally, we will conclude with a summary of the main points and a call to action.
Key Changes and Implications of UU No. 7 Tahun 2021
General Provisions and Tax Procedures
The first part of UU No. 7 Tahun 2021 covers the general provisions and tax procedures that apply to all types of taxes in Indonesia. Some of the notable changes in this part are:
International tax cooperation and assistance
The new law allows the Indonesian tax authorities to cooperate and assist other countries in collecting taxes from their respective taxpayers, based on bilateral or multilateral agreements. This means that Indonesia can request or provide information, documents, evidence, or other forms of assistance to other countries for tax purposes, as well as enforce tax claims or judgments from other countries within its jurisdiction.
Power of attorney for taxpayers
The new law also regulates the power of attorney that taxpayers can grant to their representatives or agents to act on their behalf in tax matters. The power of attorney must be made in writing, specify the scope and duration of the authorization, and be registered with the tax office. The power of attorney can be revoked at any time by the taxpayer or by the death or incapacity of either party.
Data provision for law enforcement and national interests
The new law authorizes the Indonesian tax authorities to provide data or information related to taxpayers or tax matters to other government agencies or institutions for law enforcement or national interests purposes, such as combating corruption, money laundering, terrorism financing, or other crimes. The data or information provided must be relevant, accurate, and complete, and must not violate the confidentiality or privacy of the taxpayers.
Statute of limitations for tax crimes
The new law extends the statute of limitations for tax crimes from five years to ten years, starting from the date of the tax assessment or the date of the tax payment, whichever is later. This means that the Indonesian tax authorities can investigate and prosecute tax crimes that occurred up to ten years ago, as long as they have sufficient evidence and grounds to do so.
The second part of UU No. 7 Tahun 2021 covers the income tax regulations that apply to individuals and corporations in Indonesia. Some of the notable changes in this part are:
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Taxation of benefits in kind and other benefits
The new law clarifies and expands the definition and scope of benefits in kind and other benefits that are subject to income tax. Benefits in kind are any non-cash benefits that are provided by employers to employees or by third parties to taxpayers, such as housing, vehicles, education, health care, or entertainment. Other benefits are any cash or non-cash benefits that are not related to employment or business activities, such as gifts, prizes, inheritances, or donations. The new law also provides the methods and rates for calculating the taxable value of these benefits.
Income tax rates for individuals and corporations
The new law reduces the income tax rates for individuals and corporations in Indonesia, as part of the government's stimulus package to support the economic recovery from the COVID-19 pandemic. The income tax rates for individuals are reduced from 5%, 15%, 25%, and 30% to 5%, 10%, 15%, and 22.5%, respectively. The income tax rate for corporations is reduced from 25% to 22% in 2021 and 2022, and to 20% from 2023 onwards. The new law also provides some exemptions and incentives for certain types of taxpayers, such as small and medium enterprises (SMEs), cooperatives, public companies, or venture capital firms.
Depreciation and amortization rules
The new law revises the depreciation and amortization rules for tangible and intangible assets that are used for business purposes. Depreciation is the allocation of the cost of a tangible asset over its useful life, while amortization is the allocation of the cost of an intangible asset over its legal or economic life. The new law allows taxpayers to choose between two methods for calculating depreciation or amortization: the straight-line method or the declining-balance method. The new law also provides the maximum rates and periods for each method and each type of asset.
International tax agreements and treaties
The new law reaffirms Indonesia's commitment to comply with international tax agreements and treaties that it has signed or ratified with other countries or organizations. These agreements and treaties aim to prevent double taxation, facilitate cross-border trade and investment, exchange information, resolve disputes, and combat tax evasion and avoidance. The new law also empowers the Indonesian government to implement the provisions of these agreements and treaties through regulations or decrees.
Value Added Tax and Luxury Goods Sales Tax
The third part of UU No. 7 Tahun 2021 covers the value added tax (VAT) and luxury goods sales tax (LGST) regulations that apply to goods and services in Indonesia. Some of the notable changes in this part are:
Reduction of exempted goods and services from VAT
The new law reduces the number of goods and services that are exempted from VAT in Indonesia, as part of the government's effort to broaden the tax base and increase tax revenue. The goods and services that are no longer exempted from VAT include basic food commodities, public transportation services, postal services, health care services, education services, social services, religious services, financial services, insurance services, broadcasting services, hotel services, restaurant services, catering services, entertainment services, tourism services, parking services, laundry services, beauty salon services , and funeral services. These goods and services are now subject to VAT at the standard rate of 10%, unless otherwise specified by the government.
Adjustment of VAT facilities and incentives
The new law also adjusts the VAT facilities and incentives that are available for certain taxpayers, sectors, or activities in Indonesia, as part of the government's policy to support the economic development and social welfare. The VAT facilities and incentives include exemptions, refunds, credits, deductions, or reductions of VAT for exports, imports, investments, research and development, renewable energy, agriculture, fisheries, forestry, mining, or other strategic sectors or activities. The new law also provides the criteria and procedures for applying for and obtaining these facilities and incentives.
Change of VAT rates and final VAT imposition
The new law authorizes the Indonesian government to change the VAT rates for certain goods and services, as well as to impose final VAT on certain transactions or activities. The government can increase or decrease the VAT rates from 10% to 5% or 15%, depending on the type and nature of the goods and services. The government can also impose final VAT on certain transactions or activities that involve digital products or services, e-commerce platforms, online marketplaces, or other electronic systems. The final VAT means that the VAT is collected and paid by the seller or provider of the goods or services, and cannot be credited or refunded by the buyer or recipient of the goods or services.
Voluntary Disclosure Program for Taxpayers
The fourth part of UU No. 7 Tahun 2021 covers the voluntary disclosure program (VDP) for taxpayers in Indonesia. The VDP is a special program that allows taxpayers to voluntarily report and pay their taxes that have not been reported or paid in the past, in exchange for certain benefits and incentives. Some of the notable features of the VDP are:
Eligibility and requirements for the program
The VDP is open for all taxpayers who have tax obligations in Indonesia, whether they are individuals or corporations, residents or non-residents, domestic or foreign. The VDP covers all types of taxes that are regulated under UU No. 7 Tahun 2021, such as income tax, VAT, LGST, land and building tax, stamp duty, regional tax, or sectoral tax. The VDP also covers all tax periods that have not been reported or paid before December 31, 2020.
To participate in the VDP, taxpayers must submit an application form to the tax office where they are registered, along with a declaration letter stating their intention to join the program. They must also submit a tax return and a tax payment slip for each tax period that they want to disclose under the program. They must pay their taxes in full within one month after submitting their application.
Benefits and incentives for participating in the program
The main benefit of participating in the VDP is that taxpayers can avoid any administrative sanctions or criminal penalties that they would otherwise face for not reporting or paying their taxes in the past. These sanctions or penalties include fines, interest charges, surcharges, revocation of licenses, seizure of assets, imprisonment, or prosecution.
The other benefit of participating in the VDP is that taxpayer