20
Sep2021

The Central Government Now Can Make Adjustments to Local Tax Rates and Levies

The improvement of the investment ecosystem and business activities are expected to encourage the creation of the widest range of jobs for the people of Indonesia so as to encourage the country’s economic climate.

To realize this, it takes policy alignment between the Central Government and Local Government in terms of acceleration of national strategic projects, arrangements regarding the structuring of local taxation administration and the implementation of ease of doing business. Government Regulation No. 10 of 2021 concerning Local Taxes and Local Levies in Order to Support Ease of Doing Business and Regional Services (“GR 10/2021”) is issued to become the legal basis for implementing the adjustment of tax rates and levies nationally and in the preparation of the Regulation on Taxes and Levies.

The important points regarding the provisions stipulated in GR 10/2021 are as follows:

 

Adjustment of Tax Rates and Levies

The Central Government may make adjustments to tax rates and/or levies related to national strategic projects set out in the Regional Regulation (“RR”).[1] The adjustment of the tax rate and/or levy is stipulated by the Presidential Regulation (“PR”).

The Minister / head of the institution as responsible for national strategic projects submitted a proposal for adjustment of tax rates and / or levies to the Minister of Finance.[2] The results of the review conducted by the Minister of Finance can be:[3]

  1. recommendations for tax rate adjustments and/or levies in the form of tariff reductions or exemptions; or
  2. rejection of the proposed adjustment of tax rates and/or levies.

The Recommendation of the Minister of Finance is used as a basis for the minister / head of the institution to submit a proposal for the preparation of a PR that regulates the adjustment of tax rates and / or levies.[4]

In the event that the period of adjustment of tax rates and / or levies stipulated in the PR ends, then the rates set in the RR can be re-enacted.

 

Evaluation of The RR Draft and RR concerning Taxes and Levies

The Central Government can evaluate (i) the RR Draft and (ii) the RR that has been enacted.[5]

    • Evaluation of the RR Draft

The RR Draft concerning taxes and levies before it is determined must be submitted to the Minister of Home Affairs and the Minister of Finance for a maximum of 3 (three) working days from the date of approval of the Regional House of Representatives (in Bahasa: Dewan Perwakilan Daerah “DPRD”) and the governor.[6]

The Minister of Home Affairs and the Minister of Finance conducted an evaluation of the Provincial RR Draft concerning taxes and levies. The results of the evaluation can be either approved or rejected. In the event of rejection, the governor together with the provincial DPRD improved the draft provincial regulation on taxes and levies in accordance with the recommendations of improvements.[7]

Meanwhile, the evaluation of the District/City RR Draft concerning taxes and levies is carried out by the governor, the Minister of Home Affairs, and the Minister of Finance.[8] In the case of the evaluation results in the form of rejection, the regent / mayor together with the district / city DPRD improved the district / city RR Draft concerning Taxes and Levies in accordance with the recommendations for improvement.[9]

    • Evaluation of The Regulation

The Governor / regent / mayor must submit the RR concerning Taxes and Levies that have been issued to the Minister of Home Affairs and the Minister of Finance for a maximum of 7 (seven) working days from the issuance set.[10]

In the event that the RR concerning Taxes and Levies is contrary to the public interest, higher laws and regulations, and/or National Fiscal Policy, the Minister of Finance recommends changes to the Regulation on Taxes and Levies to the Minister of Home Affairs.[11]

The Minister of Home Affairs delivered a notification letter to the governor / regent / mayor containing an explanation of violations of the Regulation, recommendations for changes to the regulation and recommendations for the termination of tax collection and / or retribution.[12]

Within a maximum of 15 (fifteen) business days from the date of notification letter received by the governor / regent / mayor must make changes to the Regulation on Taxes and Levies. In case the governor / regent / mayor does not set changes, the Minister of Home Affairs submits a recommendation to the Minister of Finance to sanction the governor / regent / mayor.[13]

 

Regulatory Supervision on Taxes and Levies

The Minister of Home Affairs and the Minister of Finance conduct monitoring and evaluation of the Regulation on Taxes and Levies and/or their implementation regulations.[14] Surveillance is based on:[15]

  1. monitoring results report;
  2. community reports;
  3. media coverage;
  4. field inspection;
  5. analysis of the development of the realization of Taxes and Levies; and/or
  6. other sources of information.

The procedure for providing notification letters and sanctions imposed to the governor / regent / mayor is the same when the Minister of Finance and the Minister of Home Affairs conduct an evaluation of the RR that has been issued.

 

Incentives for Ease of Effort

In the event that the implementation of simplification of licensing seeks to cause a reduction in local revenues sourced from Taxes and Levies, the Central Government can provide budget incentive support for Local Governments.[16]

 

Sanctions

Local Governments that do not implement the provisions of Article 10 paragraph (2), Article 13 paragraph (2), Article 17 paragraph (3), or Article 20 paragraph (3), are given written notice by the Minister of Finance.[17] The Governor/regent/mayor shall follow up on a written notice no later than 15 (fifteen) working days from the date the written notice is received.[18]

In the event that the governor / regent / mayor does not follow up on a written reprimand, against him is subject to administrative sanctions in the form of:[19]

  1. delay in the distribution of general allocation funds and/or income tax revenue sharing funds amounting to 10% (ten percent) of the amount of distribution in the next month or period to local governments that do not implement the provisions of Article 10 paragraph (2) or Article 13 paragraph (2); and
  2. delay or withholding of the distribution of general allocation funds and/or income tax revenue sharing funds amounting to 15% (fifteen percent) of the amount of distribution in the next month or period to local governments that do not implement the provisions of Article 17 paragraph (3) and/or Article 20 paragraph (3).

 

DISCLAIMER:

Any information contained in this Article is provided for informational purposes only and should not be construed as legal advice on any subject matter.  You should not act or refrain from acting on the basis of any content included in this Legal Update without seeking legal or other professional advice.  This document is copyright protected. No part of this document may be disclosed, distributed, reproduced or transmitted in any form or by any means, including photocopying and recording or stored in a retrieval system of any nature without the prior written consent of SIP Law Firm.

 

[1]  Article 3 paragraph (1) and (2) GR 10/2021

[2] Article 4 paragraph (1) GR 10/2021

[3] Article 5 paragraph (3) GR 10/2021

[4] Article 6 paragraph (2) GR 10/2021

[5] Article 8 GR 10/2021

[6] Article 10 paragraph (2) GR 10/2021

[7] Article 12 paragraph (1) GR 10/2021

[8] Article 13 paragraph (1) GR 10/2021

[9] Article 15 paragraph (1) GR 10/2021

[10]  Article 16 paragraph (1) GR 10/2021

[11] Article 16 paragraph (5) GR 10/2021

[12] Article 17 paragraph (1) and paragraph (2) GR 10/2021

[13] Article 17 paragraph (3) and paragraph (4) GR 10/2021

[14] Article 18 PP 10/2021

[15] Article 19 paragraph (1) GR10/2021

[16] Article 21 paragraph (1) GR 10/2021

[17] Article 22 paragraph (1) GR 10/2021

[18] Article 22 paragraph (3) GR 10/2021

[19] Article 23 paragraph (1) GR 10/2021

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