Govt Offers Tax Incentive on Asset Revaluation Under Fifth Phase Economic Policy Package

KATADATA - Indonesian government plans to launch new economic policy package this week just a week after the previous one. The fifth phase policy package will amend existing tax regulations. “The fifth phase policy package is about tax,” said Finance Minister Bambang Brodjonegoro di Jakarta Thursday (10/22).

Bambang, however, refused to disclose details of the policy package. Director General of Tax Sigit Priadi Pramudito provided detailed explanation on the policy package during a meeting with the House yesterday. According to him, the government will provide incentive on final income tax to companies which revaluate their assets.

The government will reduce the current final income tax rate of 10 percent based on the time of its implementation. If they perform asset revaluation this year, the tax rate is only three percent. If they perform aset revaluation in the first and and second semester next year, the tax rate will be four and six percent, respectively.

According to Sigit, there are a number of state-owned enterprises (SOE) which have expressed their interest to revaluate their assets due to this tax incentive. “I have talked to the SOEs (SOE’s CFO Forum) about this yesterday. They said ‘Wow it’s cheap only 3 percent’,” he said. What’s more interesting is that the assets to be revaluated can be selected and not necessarily the whole assets.

The tax incentive will encourage SOEs to revaluate their assets that will increase their asset values and give more space to seek new funding. Sigit pointed out that state-owned banks will gain benefits from asset revaluation because its capital to asset ratio (CAR) will increase. “They can provide more lending, their legal lending will increase,” he added.

On the other hand, asset revaluation has the potential to increase tax revenue. Earlier, Director of Counseling, Services, and Public Relations of the Directorate General of Tax Mekar Satria Utama said that tax potential from SOEs’ asset revaluation could reach IDR10 trillion. This is based on the assumption that the current SOEs’ assets values are 500 to 1,000 times under their fundamental values.

The government has planned to revaluate the SOEs’ assets for quite some time. Asset revaluation will increase the asset values of 119 SOEs that currently reached IDR4,200 trillion. It’s because the majority of SOEs’ fixed assets are still undervalued because they are recorded based on their acquisition cost a couple years ago.

The plan, however, was hampered by high tax rate of 10 percent. Minister of SOE Rini Soemarno once considered the option to convert tax on asset revalution to state capital participation (PMN) in SOEs so they don’t have to pay the tax.