Indonesia Updates Tax Regulations to Meet OECD Standards

Revised Regulations Address Key OECD Recommendations

Indonesia's tax authority has made significant changes to existing tax regulations as part of the country's OECD accession process. The revisions, explained by Director General of Taxes Bimo Wijayanto, aim to address key concerns raised by the OECD. The changes particularly focus on explicitly regulating bribery costs and implementing measures to prevent tax avoidance practices.

Key Changes in Tax Regulations

1. Regulation of Bribery Costs: The most significant change is the addition of Article 20A to Government Regulation (PP) No. 55/2022, which explicitly states that bribery costs and certain administrative penalties will not be deductible from gross income. This change directly addresses OECD recommendations made during Indonesia's membership accession process.
2. Addressing Tax Avoidance Practices: The tax authority has identified concerning practices among taxpayers using the 0.5% final income tax facility, including 'revenue bouncing' (withholding revenue) and 'firm splitting' (business splitting). These practices are being targeted through the regulatory updates.
3. Implementation Status: Five implementing regulations have been issued while one remains pending. The issued regulations cover various aspects including VAT application, tax payment procedures, and income tax adjustments.

Impact and Future Developments

The revised regulations demonstrate Indonesia's commitment to enhancing its tax framework and aligning with international best practices. The Ministry of Finance is continuing work on derivative regulations, particularly related to the Carbon Tax Roadmap, which is still in development. These changes are expected to strengthen Indonesia's tax environment and improve compliance across various sectors.