Background

Along with the increasing cases of Corona Virus Disease 2019 (“Covid-19”) in Indonesia, on March 31, 2020 the President of the Republic of Indonesia stipulated 3 related regulations as a form of response to the pandemic namely Presidential Decree No. 11 Year 2020 on Stipulation of Public Health Emergencies for Corona Virus Disease 2019 ( Covid-19) (“Presidential Decree No. 11/2020“), Government Regulation No. 21 Year 2020 on Large-Scale Social Limits in To Accelerate the Management of Corona Virus Disease 2019 (Covid-19) (“PP No. 21/2020“) and Government Regulation in Lieu of Law No. 1 Year 2020 on State Financial Policy and Stability of Financial Systems for the Management of Corona Virus Disease 2019 (Covid-19) and/or Encounter the Threat to National Economy and/or Stability of Financial Systems (“Perpu No. 1/2020“).

Perpu No. 1/2020 specifically regulates state financial policies, taxation policies, national economic recovery programs and financial system stability policies in connection with the management of Covid-19 pandemic and/or facing threats that endanger the national economy and financial system stability.

State Financial Policies

In order to manage the Covid-19 pandemic and/or facing threats that endanger the national economy and financial system stability, the Government is authorized to implement state financial policies by:

1. Setting a budget deficit limit to exceed 3% of Gross Domestic Product (GDP) during the management of Covid-19 and/or to face threats that endanger the national economy and/or financial system stability, no later than until the end of Fiscal Year 2022 and revert to 3% of GDP as of Fiscal Year 2023 with gradual adjustments;
2. Make mandatory spending adjustments and the Regional Government can use 25% of the General Transfer Fund for handling the Covid-19 pandemic;
3. Shifting the budget between organizational units, between functions and/or between programs;
4. Carry out expenditures on the State Budget related to efforts to handle the Covid-19 pandemic where the budget is not yet available, or its availability is not enough;
5. Using a budget sourced from the Remaining Over budget (ASL), endowment funds and the accumulation of endowment funds for education, funds owned by the state with certain criteria, funds managed by the Public Service Board and/or funds originating from the reduction of State Capital Inclusion in SOEs fresh funds;
6. Issuance of Government Bond and/or Government Sharia Bond for specific purposes especially in the context of the Covid-19 pandemic to be purchased by Bank Indonesia, SOEs, corporate investors and/or retail investors;
7. Determine sources of budget financing originating from domestic and/or foreign countries;
8. Providing loans to the Indonesia Deposit Insurance Corporation (“IDIC’);
9. Prioritizing the use of budget allocations for certain activities in this case for handling the Covid-19 pandemic, adjusting the allocation and/or cutting/delaying the distribution of the transfer budget to the Regional and Sub-district Funds (with certain criteria);
10. Give grants to local governments; and/or
11. Simplifying the mechanism and simplification of documents in state finance.

Further provisions will be stipulated with a Minister of Finance Regulation

Taxation Policies

The Government adjusted the tax rates for Income Tax of domestic corporate and permanent establishment in the form of a rates reduction to 22% applicable for Fiscal Year 2020 and Fiscal Year 2021 and 20% applicable for Fiscal Year 2022, and the rate for the Public Company is 19% which is applicable for Fiscal Year 2020 and Fiscal Year 2021 and 17% applicable for Fiscal Year 2022 provided that the total number of shares traded on a stock exchange in Indonesia is at least 40% and meets certain requirements based on Government Regulations.

The Government also applies taxation in Electronic Trading activities in the form of imposition of VAT and Income Tax. The imposition of VAT applies to transactions through the Electronic Trading inside the Customs Area for Intangible Taxable Goods and/or Taxable Services originating from outside the Customs Area, the provisions of which are in accordance with the Law on Value Added Tax of Goods and Services and Sales Tax on Luxury Goods. VAT is collected, deposited and reported by foreign traders, foreign service providers, foreign Electronic Trading Providers and/or domestic Electronic Trading Providers, that are appointed by the Minister of Finance.

Meanwhile, for the imposition of Income Tax or electronic transaction tax is imposed on transactions through the Electronic Trading conducted by foreign tax subjects that meet the provisions of significant economic presence. Significant economic presence is in the form of i) the gross circulation of the consolidated business groups up to a certain amount, ii) sales in Indonesia up to a certain amount, and/or iii) active users of digital media in Indonesia up to a certain amount.

Foreign traders, foreign service providers and/or foreign Electronic Trading Providers that meet the significant economic presence requirements as stipulated above can be determined as permanent establishments and imposed with the Income Tax. However, if there is an agreement with the government of another country in the context of avoiding double taxation and preventing tax evasion, the referred foreign traders, foreign service providers and foreign Electronic Trading Providers are imposed with the electronic transaction tax. Electronic transaction tax is levied on transactions for the sale of goods and/or services from outside Indonesia through the Electronic Trading conducted by foreign tax subjects to buyers or users in Indonesia. Income Tax or electronic transaction tax as referred above is paid and reported by foreign traders, foreign service providers and/or foreign Electronic Trading Providers. Collection, deposit and reporting of VAT and/or Income Tax or electronic transaction tax by foreign traders, foreign service providers and/or foreign Electronic Trading Providers can be represented by an entity domiciled in Indonesia. All rates and procedures for calculation and collection of VAT and/or Income Tax or electronic transaction tax above are regulated based on Government Regulation and Minister of Finance Regulation.

All of the above taxation implementations are inseparable from the provisions of Law No. 6 Year 1983 on Tax General Provisions and Procedures as amended several times, the latest by Law No. 16 Year 2009, and administrative sanctions are in the form of reprimands to the termination of access for those who violate the tax provisions above.

In addition, the Government also provides remission to taxpayers by extending the implementation of rights and fulfilling tax obligations in the form of:

1. For the submission of objections to taxpayers which its due date ends during the Covid-19 pandemic can be extended for a maximum of 6 months;
2. For returns on overpayment of taxes which its due date ends during the Covid-19 pandemic can be extended for a maximum of 1 month;
3. For requests for returning tax overpayments, submission of Taxpayer’s objection letters and requests for reduction or elimination of administrative sanctions, reduction or cancellation of incorrect tax assessments and cancellation of the results of audits which its due date of the decree issuance ends during the Covid-19 pandemic then the decree is extended for a maximum of 6 months.

The stipulation of the Covid-19 pandemic period above refers to the stipulation of the Government through the National Disaster Management Agency.

Furthermore, the Government also provides remission to business actors by giving authority to the Minister of Finance to facilitate the remission or amnesty of import duties on imported goods in connection with the management of the Covid-19 pandemic and/or facing threats that endanger the national economy and/or financial system stability. Changes to imported goods which are exempted from import duty and changes to imported goods that can be given exemption or remission of import duties based on Article 25 paragraph (1) jo. Article 26 paragraph (1) of Law No. 10 Year 1995 on Customs as amended by Law No. 17 Year 2006 is further regulated by Regulation of the Minister of Finance.

National Economic Recovery Program

To carry out national economic recovery, the Government implements a national economic recovery program in the form of State Capital participation carried out through SOEs appointed by the Government, placement of funds and/or Government investments carried out directly by the Government and/or through other institutions appointed by the Government, as well as guarantee activity with a scheme established by the Government and run directly by the Government and/or through one or several deposit insurance corporation appointed by the Government. The implementation of national economic recovery is regulated further by a Government Regulation.

Stability of Financial System Policies

To carry out stability of financial system policies there are 5 parties who are given the authority, namely:

1. Financial System Stability Committee

The Financial System Stability Committee (“FSSC“) is a committee that organizes the mitigation and management of financial system crises as referred to in the Law concerning the mitigation and management of financial system crises. FSSC is given the authority to i) hold meetings to formulate and determine steps to deal with financial system stability problems and ii) establish a scheme of providing support by the Government for managing the issues of financial service institutions that endanger the national economy. Further provisions regarding the referred support scheme are regulated by Government Regulation.

• Bank Indonesia

To support the authority of the FSSC in managing financial system stability issues, Bank Indonesia is authorized to:

1. Provide short-term liquidity loans or short-term liquidity financing based on Sharia principles to Systemic Banks or banks other than Systemic Banks;
2. Provide Special Liquidity Loans to Systemic Banks guaranteed by the Government and provided based on the FSSC decision;
3. Buy long-term Government Bonds and/or Government Sharia Bonds in the primary market, including those issued in connection with the Covid-19 pandemic, intended as a source of funding for the Government related to economic recovery;
4. Buy/repo government bonds owned by IDIC for the cost of managing the solvency problems of Systemic Banks and banks other than Systemic Banks;
5. Regulates the obligation to receive and use foreign exchange, including provisions concerning the transfer, repatriation and conversion of foreign exchange. This provision is regulated by Bank Indonesia Regulations and all conflicting laws and regulations are declared invalid;
6. Providing access to funding to corporations/private companies by means of repo of Government Bonds or Sharia Bonds owned by corporations/private through banks.

• Indonesia Deposit Insurance Corporation

To support the implementation of the FSSC authority in managing financial system stability issues, IDIC is authorized to:

1. Along with the Financial Services Authority conducting preparations management for banks under intensive supervision and increasing the intensity of preparations for banks under special supervision, for managing bank solvency issues;
2. Conduct sales/repo of owned Government Bonds to Bank Indonesia, issuance of obligations, loans to other parties and/or loans to the Government, in the event of IDIC is expected to experience liquidity difficulties for handling failed banks;
3. Make a decision regarding the recovery of a bank other than a Systemic Bank which is declared a failed bank;
4. Formulate and implement a deposit guarantee policy for customer groups.

• Financial Services Authority

To support the implementation of the FSSC authority in managing financial system stability issues, the Financial Services Authority is authorized to give written instructions to the Financial Services Institution to merge, consolidate, acquire, integrate and/or convert, setting exceptions for issuers from the obligation to carry out the principle of openness in the capital market sector in connection to preventing and managing financial system crises and stipulating provisions regarding the use of information technology in the conduct of GMS or other meetings that must be carried out based on laws and regulations.

• Government

To support the implementation of the FSSC authority in managing financial system stability issues, the Government is authorized to provide loans to IDIC. The lending is carried out in the event of IDIC is experiencing liquidity problems that could endanger the economy and financial system as a result of the Covid-19 pandemic. Provisions regarding the terms and procedures for distributing loans are further regulated by the Minister of Finance Regulation.

Sanctions

Any person who deliberately ignores, does not fulfill, does not carry out or hinders the implementation of the authority of the Financial Services Authority related to a written order to the Financial Services Institution to conduct a merger, consolidation, acquisition, integration and/or conversion, is imposed with a minimum of 4 years in prison and a fine at minimum of Rp 10,000,000,000, – or a maximum imprisonment of 12 years and a maximum fine of Rp 300,000,000,000. If the violation is committed by a corporation, then minimum fine of at least Rp 1,000,000,000,000.

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Herdiasti Anggitya